Protected tax free cash

Steve182

I had scheme level protected tax free cash of 41% in a pension scheme in 2018

I transferred to a SIPP as a block transfer, all done within the required timescale to preserve the benefit. No further contributions have been made to that SIPP, although it's increased in value by about 35% through growth.

I plan to take my full TFLS in January and have asked the SIPP provider for an estimate of current tax free cash. I cannot get a straight answer -

"we would require a protection certificate from HMRC, before we are able to apply this to our system due to us needing the correct numbers form the certificate."

So presumably they need to apply for this certificate at the point that I request the TFLS.

In the absence of any further contributions since the original valuation, can I expect it to have remained at 41%?

xylophone

I had scheme level protected tax free cash of 41% in a pension scheme in 2018

I transferred to a SIPP as a block transfer, all done within the required timescale to preserve the benefit. 

This may be worth a read.

https://techzone.abrdn.com/public/pensions/Tech-guide-scheme-specific-tfc

• Tax free cash rights greater than 25% at 5 April 2006 can be protected
• Protected cash rights can be lost on transfer or if paid in stages
• Block (buddy) transfers can maintain protection when switching schemes
• Individuals with stand-alone lump sum protection can take all their fund tax free
• No application to HMRC is needed

The simplest way to identity these members is to ask the scheme administrator. They may be able to confirm immediately if the member has protected tax free cash. If not, they may need additional information in order to calculate A-Day tax free cash.

To calculate a member's A-Day tax free cash entitlement the scheme administrator will need details of the member's salary and bonus history in the years prior to A-Day. The scheme administrator may also ask for details of pension benefits held in other schemes at that time.

Obtaining this historical information can be difficult if the member has not kept records. If this information cannot be found they may not be able to protect tax free cash. In this situation, tax free cash will be limited to 25% of the fund.

As you transferred to the SIPP through a block transfer specifically to protect  the 41% TFC, surely all necessary information was supplied the your SIPP provider at that time?

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm063130

As the name suggests, this form of lump sum protection applies to a specific pension scheme. There is no need for an individual or pension scheme administrator to claim this protection from HMRC. The legislation applies the protection automatically. However, this doesn’t mean that a pension scheme has to pay the maximum allowable lump sum.

The next section Conditions for scheme-specific lump sum protection sets out the conditions for qualifying for, and using, scheme-specific lump sum protection. Note that it is possible for someone to lose this form of lump sum protection if a member transfers their rights to another pension scheme and the transfer is not a block transfer. See PTM063150 for issues that arise regarding this protection when a transfer is made, whether or not it is a block transfer.

Steve182

xylophone said:

I had scheme level protected tax free cash of 41% in a pension scheme in 2018

I transferred to a SIPP as a block transfer, all done within the required timescale to preserve the benefit. 

This may be worth a read.

https://techzone.abrdn.com/public/pensions/Tech-guide-scheme-specific-tfc

• Tax free cash rights greater than 25% at 5 April 2006 can be protected
• Protected cash rights can be lost on transfer or if paid in stages
• Block (buddy) transfers can maintain protection when switching schemes
• Individuals with stand-alone lump sum protection can take all their fund tax free
• No application to HMRC is needed

The simplest way to identity these members is to ask the scheme administrator. They may be able to confirm immediately if the member has protected tax free cash. If not, they may need additional information in order to calculate A-Day tax free cash.

To calculate a member's A-Day tax free cash entitlement the scheme administrator will need details of the member's salary and bonus history in the years prior to A-Day. The scheme administrator may also ask for details of pension benefits held in other schemes at that time.

Obtaining this historical information can be difficult if the member has not kept records. If this information cannot be found they may not be able to protect tax free cash. In this situation, tax free cash will be limited to 25% of the fund.

As you transferred to the SIPP through a block transfer specifically to protect  the 41% TFC, surely all necessary information was supplied the your SIPP provider at that time?

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm063130

As the name suggests, this form of lump sum protection applies to a specific pension scheme. There is no need for an individual or pension scheme administrator to claim this protection from HMRC. The legislation applies the protection automatically. However, this doesn’t mean that a pension scheme has to pay the maximum allowable lump sum.

The next section Conditions for scheme-specific lump sum protection sets out the conditions for qualifying for, and using, scheme-specific lump sum protection. Note that it is possible for someone to lose this form of lump sum protection if a member transfers their rights to another pension scheme and the transfer is not a block transfer. See PTM063150 for issues that arise regarding this protection when a transfer is made, whether or not it is a block transfer.

SIPP provider was given full details of the protected TFC from the original scheme administrator at the time of the transfer.

Last week they denied having received these details during the transfer, but the original scheme administrator, on my request, this week provided them with a copy of their original letter from 2018 with full details of protected TFC, they have copied me in.

Furthermore my correspondence with the SIPP provider during the transfer pointed out the existence of protected TFC on more than one occasion and that the block transfer needed to be carried out in a manner which preserved the TFC. As far as I understand it has been. I researched it thoroughly beforehand

So if they've failed to preserve it through negligence there will be a solicitors letter on the way!

dunstonh

I transferred to a SIPP as a block transfer, all done within the required timescale to preserve the benefit. No further contributions have been made to that SIPP, although it's increased in value by about 35% through growth.

The block transfer should protect the protected tax free cash entitlement.   So, this would appear to be an admin issue rather than a transaction carried out incorrectly.  Possibly a bad scan or someone scrolling through dozens of pages and missing it.   Should be pretty easy to resolve once the receiving scheme admit to having the documents (or resupplying them).

Steve182

dunstonh said:

I transferred to a SIPP as a block transfer, all done within the required timescale to preserve the benefit. No further contributions have been made to that SIPP, although it's increased in value by about 35% through growth.

The block transfer should protect the protected tax free cash entitlement.   So, this would appear to be an admin issue rather than a transaction carried out incorrectly.  Possibly a bad scan or someone scrolling through dozens of pages and missing it.   Should be pretty easy to resolve once the receiving scheme admit to having the documents (or resupplying them).

In terms of block transfer protecting TFC I think that's correct too, and I think I should have TFC of circa 41% based on my current fund value as there have been no further contributions since the transfer.

However I'm slightly uneasy that I cannot obtain any confirmation of this, even approximately from my current SIPP provider.

This was their reply when I asked for an updated estimate -

"In regards to the below email, we would require a protection certificate from HMRC, before we are able to apply this to our system due to us needing the correct numbers form the certificate."

What kind of an answer is that?

I'd like to do some financial planning for goodness sake (rant not directed at you dunstonh)!

coyrls

Do you also have any LTA protection?  The language they are using seems to imply LTA protection for which you do get a certificate from HMRC, rather than TFC but I may be wrong.

Steve182

coyrls said:

Do you also have any LTA protection?  The language they are using seems to imply LTA protection for which you do get a certificate from HMRC, rather than TFC but I may be wrong.

No I don't, but strangely they referred to LTA protection when I queried my extra TFC. 

Steve182

My latest email to AJ Bell

Hi ~~~~~~~

Please can you obtain this (protection certificate) from HMRC?

I intend to withdraw my full TFLS, which I believe will be circa 41% of my fund value soon after my 55th birthday in January 2024, so would like to deal with any such formalities beforehand.

Regards

Steve182

Marcon

Steve182 said:

xylophone said:

I had scheme level protected tax free cash of 41% in a pension scheme in 2018

I transferred to a SIPP as a block transfer, all done within the required timescale to preserve the benefit. 

This may be worth a read.

https://techzone.abrdn.com/public/pensions/Tech-guide-scheme-specific-tfc

• Tax free cash rights greater than 25% at 5 April 2006 can be protected
• Protected cash rights can be lost on transfer or if paid in stages
• Block (buddy) transfers can maintain protection when switching schemes
• Individuals with stand-alone lump sum protection can take all their fund tax free
• No application to HMRC is needed

The simplest way to identity these members is to ask the scheme administrator. They may be able to confirm immediately if the member has protected tax free cash. If not, they may need additional information in order to calculate A-Day tax free cash.

To calculate a member's A-Day tax free cash entitlement the scheme administrator will need details of the member's salary and bonus history in the years prior to A-Day. The scheme administrator may also ask for details of pension benefits held in other schemes at that time.

Obtaining this historical information can be difficult if the member has not kept records. If this information cannot be found they may not be able to protect tax free cash. In this situation, tax free cash will be limited to 25% of the fund.

As you transferred to the SIPP through a block transfer specifically to protect  the 41% TFC, surely all necessary information was supplied the your SIPP provider at that time?

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm063130

As the name suggests, this form of lump sum protection applies to a specific pension scheme. There is no need for an individual or pension scheme administrator to claim this protection from HMRC. The legislation applies the protection automatically. However, this doesn’t mean that a pension scheme has to pay the maximum allowable lump sum.

The next section Conditions for scheme-specific lump sum protection sets out the conditions for qualifying for, and using, scheme-specific lump sum protection. Note that it is possible for someone to lose this form of lump sum protection if a member transfers their rights to another pension scheme and the transfer is not a block transfer. See PTM063150 for issues that arise regarding this protection when a transfer is made, whether or not it is a block transfer.

SIPP provider was given full details of the protected TFC from the original scheme administrator at the time of the transfer.

Last week they denied having received these details during the transfer, but the original scheme administrator, on my request, this week provided them with a copy of their original letter from 2018 with full details of protected TFC, they have copied me in.

Furthermore my correspondence with the SIPP provider during the transfer pointed out the existence of protected TFC on more than one occasion and that the block transfer needed to be carried out in a manner which preserved the TFC. As far as I understand it has been. I researched it thoroughly beforehand

So if they've failed to preserve it through negligence there will be a solicitors letter on the way!

The average solicitor won't have a clue - and specialist pensions lawyers can cost eye watering amounts. If you need help to go through the complaints procedure (which would be your next step, although I hope from what you've said it won't in practice be necessary - as dunstonh has said, sounds like an admin slip rather than anything more seismic), you can get it free from https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-problems (and yes, they do know what they're doing - some of their volunteer advisers are those self-same specialist pensions lawyers!).

dunstonh

Steve182 said:

coyrls said:

Do you also have any LTA protection?  The language they are using seems to imply LTA protection for which you do get a certificate from HMRC, rather than TFC but I may be wrong.

No I don't, but strangely they referred to LTA protection when I queried my extra TFC. 

I think are barking up the wrong tree.  As mentioned above, the language and requirements do not fit with protected tax free cash.  Initially I thought it was your interpretation and LTA protection has nothing to do with protected tax free cash or certficates.

So, I think whoever you are dealing with is mixing up LTA protection (which is certificated) with Protected tax free cash.

protected tax free cash is not common.  It happens frequently enough that I see several a year but if the pension provider is a small player then their staff members may not see it often enough to know it exists.   AJ Bell on the other hand should know better.

Steve182

This is an extract from the letter that the administrator of the original scheme sent to the new SIPP provider at the point the funds were transferred -

"Total fund value £280,077.36 to be split as follows:

 

·         Pre 97 Additional Benefit                                               £32,595.03

·         Post 97 Additional Benefit                                              £242,174.80

·         Additional Voluntary Contributions                                  £5,307.53

Mr X has protected tax free entitlement which he wants transferred. Details are as follows:

Current Tax Free Cash entitlement as at 05/11/2018: £112,533.37.

Tax Free Cash entitlement on 05/04/2006: £44,874.57.

Fund value at 05/04/2006: £66,031.80. "

Later in the letter -

"Please note that the scheme, after 5 April 2012, does treat Protected Rights in the same way as non Protected Rights."

So I think it's definitely protected TFC rather than LTA protection. I don't know the relevance of the last sentence above?   

So based on the above numbers -

On 5/4/2006 the TFC was 68% of the fund
On 5/11/2018 the TFC was 40%

I assume the % drop from 2006 to 2018 was due to dilution as further contributions were made. No further contributions were made after the block transfer in 2018