Understanding scheme specific tax-free cash
Up to 30 CPD minutes
Introduction
Protected tax-free cash above 25% is a valuable benefit, so it’s important that advisers are aware of how the entitlement is calculated when taking benefits, the situations in which it could be lost and the restrictions in flexibility that come with the protection.
This module should take around 30 minute to complete. It includes a short self-assessment quiz to test what you’ve learned. A 30 minutes CII/PFS accredited CPD certificate can be claimed.
This module should take around 30 minute to complete. It includes a short self-assessment quiz to test what you’ve learned. A 30 minutes CII/PFS accredited CPD certificate can be claimed.
Outcomes
On completion of this module you should be able to:
- Determine if clients could be entitled to scheme specific tax-free cash
- Explain the conditions that must be met to allow protected tax-free cash to be paid, including the special rules for ‘stand-alone lump sums’
- Calculate current protected tax-free cash entitlement, based on A-Day values
- Explain when protected tax-free cash rights can be retained on transferring to another pension scheme
- Explain how protected tax-free cash rights are tested against the ‘lump sum allowance’ (LSA) and ‘lump sum and death benefit allowance’ (LSDBA)
Learning material
This module looks at how scheme specific tax-free cash is calculated on taking benefits and the situations in which the protection could be lost - in particular, the rules around transferring protected tax-free cash rights.
Please read the learning material before attempting the self-assessment questions.
CPD minutes: up to 30
Technical guide – Scheme specific tax-free cash protectionOpens in new windowPlease read the learning material before attempting the self-assessment questions.
CPD minutes: up to 30
Post learning assessment
Question 1
Which of the following statements about scheme specific tax-free cash rights is false?
a. Available to pre A-Day members of occupational schemes who were entitled to more than 25% tax-free cash on 5 April 2006
b. Not available to clients who had registered tax-free cash under enhanced and/or primary protection
c. Scheme specific tax-free cash rights had to be registered by 5 April 2009
d. All benefits under the scheme have to be crystallised at the same time
a. Available to pre A-Day members of occupational schemes who were entitled to more than 25% tax-free cash on 5 April 2006
b. Not available to clients who had registered tax-free cash under enhanced and/or primary protection
c. Scheme specific tax-free cash rights had to be registered by 5 April 2009
d. All benefits under the scheme have to be crystallised at the same time
Question 2
Which of the following would not result in the loss of stand-alone tax-free cash protection?
a. Benefits are taken in stages (phased)
b. Contributions are made to the scheme
c. A block transfer to a newly established scheme
d. The member decides to take some of the benefits as a pension.
a. Benefits are taken in stages (phased)
b. Contributions are made to the scheme
c. A block transfer to a newly established scheme
d. The member decides to take some of the benefits as a pension.
Question 3
Which of the following would mean that scheme specific tax-free cash protection is lost?
a. A block transfer to a brand new scheme
b. A transfer to a section 32 on scheme wind-up
c. A partial transfer
d. A block transfer to a scheme where the individual has been a member for several years
a. A block transfer to a brand new scheme
b. A transfer to a section 32 on scheme wind-up
c. A partial transfer
d. A block transfer to a scheme where the individual has been a member for several years
Question 4
Mike wants to take tax-free cash from his SIPP, which has scheme specific tax-free cash protection. Which of the following is correct?
a. 100% of the tax-free cash paid counts towards both the LSA and the LSDBA
b. 25% of the value of benefits crystallised counts towards the LSA and 100% of the tax-free cash paid counts towards the LSDBA
c. 100% of the tax-free cash paid counts towards the LSA and 25% of the value of benefits crystallised counts towards the LSDBA
d. 25% of the value of benefits crystallised counts towards both the LSA and the LSDBA
a. 100% of the tax-free cash paid counts towards both the LSA and the LSDBA
b. 25% of the value of benefits crystallised counts towards the LSA and 100% of the tax-free cash paid counts towards the LSDBA
c. 100% of the tax-free cash paid counts towards the LSA and 25% of the value of benefits crystallised counts towards the LSDBA
d. 25% of the value of benefits crystallised counts towards both the LSA and the LSDBA
Check your answers
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Any reference to legislation and tax is based on our understanding of United Kingdom law and HM Revenue & Customs practice at the date of production. These may be subject to change in the future. Tax rates and reliefs may be altered. The value of tax reliefs to the investor depends on their financial circumstances. No guarantees are given regarding the effectiveness of any arrangements entered into on the basis of these comments.