PTM063300 - Member benefits: lump sums: uncrystallised funds pension lump sum (UFPLS)
As of 6 April 2024 there is no longer lifetime allowance. If you are looking for information about protections, enhancement factors and the lifetime allowance charge please see these pages on The National Archives. If you are looking for information about the principles of lifetime allowance and benefit crystallisation events please see these pages of The National Archives.
Glossary PTM000001
What is an uncrystallised funds pension lump sum
Conditions for an uncrystallised funds pension lump sum
When a lump sum cannot be paid as an uncrystallised funds pension lump sum
Taxation of an uncrystallised funds pension lump sum
What is an uncrystallised funds pension lump sum
Section 166(1) and paragraph 4A(1)(a) schedule 29 Finance Act 2004
From 6 April 2015, an uncrystallised funds pension lump sum(UFPLS) can be paid as an authorised member payment to a member from uncrystallised funds held in a money purchase arrangement, that is not a collective money purchase arrangement, for that member. Uncrystallised funds are funds held in respect of the member which have not, as yet, been used to provide that member with a benefit under the scheme. If the money purchase arrangement is a cash balance arrangement, uncrystallised funds in the arrangement are the funds there would be in the arrangement if the member decided to draw benefits on a particular date, not the funds actually held in the cash balance arrangement at that time.
The tax rules do not limit the number of uncrystallised funds pension lump sums that can be taken from uncrystallised funds held in a money purchase arrangement that is not a collective money purchase arrangement. Depending on the rules of the registered pension scheme in which the arrangement is held, the member can take their entire uncrystallised funds as a single lump sum or as a number of lump sums spread over a period of time, or they could take one or more uncrystallised funds pension lump sums from some of the funds in the arrangement, with the remainder having been or intended to be used to provide some other form of benefit, for example, a lifetime annuity.
Conditions for an uncrystallised funds pension lump sum
Paragraph 4A schedule 29 Finance Act 2004
To be an uncrystallised funds pension lump sum, a lump sum must:
- be paid on or after 6 April 2015 in relation to a money purchase arrangement that is not a collective money purchase arrangement
- be paid when the member has reached the normal minimum pension age (currently age 55 but this will increase to age 57 from 6 April 2028) or an earlier age if the member meets the ill-health condition (see PTM062100) or has a protected pension age (see PTM062210)
- not be a pension commencement lump sum (see PTM063210)
- not be a lump sum that is treated for tax purposes as a trivial commutation lump sum by regulations (see PTM063700)
- satisfy the requirement that immediately before the member becomes entitled to the lump sum, the sums and assets used to provide it must represent uncrystallised rights of the member as defined by sections 212(1) and (2) Finance Act 2004.
When a lump sum cannot be paid as an uncrystallised funds pension lump sum
Section 278A and paragraph 4A(1)(f) and (8) schedule 29 Finance Act 2004
A lump sum cannot be an uncrystallised funds pension lump sum in the following circumstances:
- if the sums and assets used to provide it represent, to any extent, a disqualifying pension credit. A pension credit is a disqualifying pension credit if at the time the pension credit was created, the member’s ex-spouse or former civil partner’s pension that was being shared with the member was actually in payment. The reason for this is that where a pension in payment is split through a pension sharing order (see PTM029000), when that pension first came into payment, the original member (the pension debit member) will or could have taken a tax-free lump sum in respect of those benefits. So, it is not appropriate to allow a lump sum to be taken when the pension credit rights come into payment. This applies regardless of whether or not a lump sum was actually taken by the pension debit member
- if immediately before the lump sum is paid the member has valid enhanced protection, with or without dormant primary protection, and the member also has protection for lump sum rights which exceeded £375,000 on 5 April 2006 (see PTM063120)
- if the member has valid primary protection immediately before the lump sum is paid and the member also has protection for lump sum rights which exceeded £375,000 on 5 April 2006 (see PTM063110)
Taxation of an uncrystallised funds pension lump sum
Sections 579A and 637D, P and Q Income Tax (Earnings and Pensions) Act 2003
Paragraph 12A schedule 29 Finance Act 2004
An uncrystallised funds pension lump sum is a relevant lump sum and is also a relevant benefit crystallisation event. Payment of an UFPLS is tested against both the lump sum allowance and the lump sum and death benefit allowance, The UFPLS is taxed as follows:
- 25% is not liable to tax, that is, it is paid tax-free unless the first 25% exceeds the "permitted maximum"
- 75% is taxed as pension income in the same way as a pension paid under a registered pension scheme.
The permitted maximum is the lower of:
- the member's available lump sum allowance
- the member's available lump sum and death benefit allowance
If the first 25% of the UFPLS is more than the permitted maximum, the amount by which it exceeds the permitted maximum is taxed as pension income at the member's marginal rate.
Where part or all of the lump is taxable the payer of the lump sum will deduct and account for Income Tax under the requirements of PAYE regulations( see PTM024600).