Protected tax free cash

HappyHarry

The percentage of Tax Free Cash will not remain at 41% (did you mean 40.1%?), and will likely slowly drop over time due to the formula used to calculate it.

If you post your current fund value, we can let you know how much TFC you might expect from your pension fund.

Steve182

HappyHarry said:

The percentage of Tax Free Cash will not remain at 41% (did you mean 40.1%?), and will likely slowly drop over time due to the formula used to calculate it.

If you post your current fund value, we can let you know how much TFC you might expect from your pension fund.

Please do, thanks

Yes it was 40.1%

Currently £380K

HappyHarry

Steve182 said:

HappyHarry said:

The percentage of Tax Free Cash will not remain at 41% (did you mean 40.1%?), and will likely slowly drop over time due to the formula used to calculate it.

If you post your current fund value, we can let you know how much TFC you might expect from your pension fund.

Please do, thanks

Yes it was 40.1%

Currently £380K

TFC of £137,040 (36.06%)

Steve182

HappyHarry said:

Steve182 said:

HappyHarry said:

The percentage of Tax Free Cash will not remain at 41% (did you mean 40.1%?), and will likely slowly drop over time due to the formula used to calculate it.

If you post your current fund value, we can let you know how much TFC you might expect from your pension fund.

Please do, thanks

Yes it was 40.1%

Currently £380K

TFC of £137,040 (36.06%)

Thanks for that, so the % tax free cash does not remain constant and drops as the fund grows. That's further vindicated my decision to take it out at the earliest opportunity and reinvest it within different tax shelters. My primary reasons were to shelter future growth of the tax free element from LTA and to recycle a bit into my other SIPP, within the allowable recycling limits.

HappyHarry

There are rumours that the Lifetime Allowance might be increased in the budget on Wednesday. 

The Lifetime Allowance forms part of the enhanced Tax Free Cash calculation.

If the Lifetime Allowance does increase, then your TFC, currently £137,040 could fall. 

For every £100,000 increase in the Lifetime Allowance, your TFC would fall by around £1,100.

Steve182

HappyHarry said:

There are rumours that the Lifetime Allowance might be increased in the budget on Wednesday. 

That would be a surprise to me given that it was supposed to be frozen until 2026, and allowances such as CGT and dividends are coming down next tax year. 

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Edited to say that after some thought perhaps I would not be that surprised. We do have a conservative government after all.

Halving CGT and divi allowances has a disproportionately greater effect on low to middle income families who might have some dividend income or capital gain, but less so on the rich where the allowances are of little significance.

On the other hand it's only upper middle to high earners who would benefit from an increase in LTA limit.

dunstonh

On the other hand it's only upper middle to high earners who would benefit from an increase in LTA limit.

That is incorrect.

Public sector workers earning around £50k a year are now going through the lifetime allowance.   Plus, the impact on the NHS affects everyone regardless of their worth.

Steve182

dunstonh said:

On the other hand it's only upper middle to high earners who would benefit from an increase in LTA limit.

That is incorrect.

Public sector workers earning around £50k a year are now going through the lifetime allowance.   Plus, the impact on the NHS affects everyone regardless of their worth.

OK, perhaps middle to high earners rather than upper middle to high. I would consider £50K to be middle earner category, especially when 20% employer pension contributions are factored in.

Still, shouldn't complain, if the LTA is raised it reduces the likelihood that I'll receive a charge.

Steve182

Following on from the earlier correspondence with my SIPP provider  -

"In regards to the below email [requesting a current valuation of TFC], 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 I asked them to obtain this from HMRC, and below is their latest reply -

"Thank you for your email.

Unfortunately its not something we can do, we cannot speak to HMRC directly in regards to specific client so you would have to do this and send it over to us."

Quotes from Techzone in regard to protected TFC kindly provided by xylophone -

• 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. -Which they have

• 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. 

Are AJ Bell barking up the wrong tree here? 

It sounds like they have all the details required because it was scheme specific protection, not some benefit that HMRC provide? 

I gather from previous comments on this thread that may be no such thing as a protection certificate from HMRC for TFC. Are they are getting confused with the rules for LTA protection?

It seems clear that my previous scheme would have paid it without me having to obtain a certificate from HMRC.

I guess I may just have to humor them and contact HMRC, who I guess will probably say that they don't provide such certificates and that the new scheme needs to obtain the relevant info from the old scheme.

xylophone

You have the links to the Techzone fact sheet and to HMRC Manual.

Here is the Pru/M&G version.

https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/primary-protection-tax-free

This caught my eye

Before covering protection of lump sum rights, it’s important to understand the valuation of lump sum rights at A-day.

When people notified HMRC of their intention to rely on primary or enhanced protection, it was also possible to protect lump sum rights that were more than £375,000 on 5 April 2006.

However, there is no reference to a certificate.

There is though this

https://www.curtisbanks.co.uk/case-study/enhanced-protection-fact-sheet/

If, on 5 April 2006, you were entitled to more than £375,000 tax free cash, you could protect this as part of your enhanced protection. The protection certificate would give a protected PCLS percentage based on the values as at 5 April 2006. For example, if your pension had been worth £2m and your tax free cash entitlement was £400,000, your certificate would show protected PCLS of 20%. You would be able to take 20% PCLS every time you took benefits, with no upper limit.


This leads me to wonder if the "certificate" applied to TFC greater than £375,000?

I guess I may just have to humor them and contact HMRC, who I guess will probably say that they don't provide such certificates and that the new scheme needs to obtain the relevant info from the old scheme.

You could write and put your query.

https://www.gov.uk/government/organisations/hm-revenue-customs/contact/pension-scheme-enquiries