Pension commencement lump sums of more than 7.5 per cent
These payments need to be reported under:
- reportable event 7 for pension commencement lump sums, or
- reportable event 8A for stand-alone lump sums
of Regulation 3 of The Registered Pension Schemes (Provision of Information) Regulations 2006 - SI 2006/567.
In deciding if you need to report a pension commencement lump sum here, you need to apply three tests. If, for example, the member's pension commencement lump sum is £135,000 and their pension rights are £400,000, you would check what the standard lifetime allowance applicable for the reporting year is. For 2006-07, it is £1.5 million. (Test 1) Then calculate what 25% of this figure is (£1.5 million × 25% = £375,000).
If the member's pension commencement lump sum is less than this (£375,000) you need to apply Test 2 below. In the example, the pension commencement lump sum is £135,000 so continue to Test 2 below. If the amount was more than £375,000, no report is needed under this section. You may need to report this under 'The scheme made a pension commencement lump sum or stand alone lump sum to a member who relied on an enhanced lifetime allowance or enhanced protection.'
- (Test 2) Is the pension commencement lump sum more than 25% of the member's pension rights. In this example the pension rights are £400,000. 25% of this figure is £100,000. The member's pension commencement lump sum is more than this as it is £135,000. You therefore need to apply Test 3 below. If the pension commencement lump sum is less than 25% of the member's pension rights, no report is required under this section.
- (Test 3) What is 7.5% of the standard lifetime allowance applicable for the reporting year? For example, the standard lifetime allowance for 2006-07 is £1.5 million. 7.5% of this is £112,500. In the example, the pension commencement lump sum is £135,000 therefore a report would be required under this section.
In deciding if you need to report a stand alone lump sum here, you need to apply the following two tests:
- What is the standard lifetime allowance for the reporting year? For example, in 2006-07 it is £1.5 million. Then what is 7.5% of the standard lifetime allowance. In 2006-07 this is £1.5million × 7.5% = £112,500. If the lump sum is more than this then you need to apply Test 2. If the lump sum is less than this, you do not need to make a report.
- Is the stand alone lump sum more than 25% of the standard lifetime allowance. If it is not, then you will need to make a report under this event. If it is more than 25% of the standard lifetime allowance, has the member relied on an enhanced lifetime allowance or enhanced protection? If not, then you need to report under this event. If they have, you do not need to report under this event. You should report it under 'The scheme made any pension commencement lump sum or stand alone lump sum payments to a member who relied on an enhanced lifetime allowance or enhanced protection.'
For further guidance on pension commencement lump sums and stand alone lump sums, refer to the Registered Pension Schemes Manual at RPSM03304000 and RPSM03304061 respectively.
For the meaning of 'standard lifetime allowance', see the relevant entry under 'S' in the Registered Pension Schemes Manual glossary. The manual can be accessed from the left-hand navigation bar.
