Protected Tax Free Cash

An important element of some older pension contracts is protected tax free cash. Did you have lump sum tax free cash rights (combining crystallised and uncrystallised pension funds) of over £375,000 on 5 April 2006?

If so, then you may have protected your tax free cash at 6 April 2006 (A Day) and this section is therefore for you.


The standard rule for tax free cash

The standard rule is that maximum tax-free cash (TFC) is 25% of the pension value, subject to 25% of the member’s available lifetime allowance (LTA).

Tax-free cash can be protected though, and the type of lifetime allowance protection held can affect the calculation of tax-free cash.


The type of protection

Lump sum tax free cash rights of over £375,000 on 5 April 2006 could be protected under either primary, enhanced or scheme specific protection.

  • For primary protection it is the monetary amount of tax-free cash rights at 5 April 2006 that is protected.


  • For enhanced protection the protected lump sum is quoted as a percentage, rather than a monetary value.


  • Scheme specific tax-free cash protection can apply for people who had tax-free cash rights at 5 April 2006 exceeding 25% of their fund on that date.

What you should check

  • If you have a Money Purchase Occupational Pension plan – Contracted-in Money Purchase Scheme (CIMP) ; Contracted-out Money Purchase Scheme (Comp); Executive Pension plan (EPP); Small Self-Administered Pension Scheme (SSAS) or Section 32 Buy-Out Plan – and the scheme was set up before 2006, did you protect any tax-free cash?


  • Is the contract limited as to how retirement benefits can be taken? Is the contract which provides the protected tax-free cash limited as to how retirement benefits can be taken (it may not support Flexi-Access Drawdown for instance).


  • Is the contract restricted to certain funds? Is the contract restricted in what funds can be used (perhaps a With Profits or a closed fund).


  • What is your timeframe for taking benefits?




This information does not constitute personal advice and should not be treated as a substitute for specific advice based on your circumstances.

Information given relating to tax legislation is based on my understanding of legislation and practice currently in force. Whilst I believe my interpretation of current law and practice to be correct in these areas, I cannot be responsible for the effects of any future legislation or any change in interpretation or treatment. In particular you are warned that levels of tax and tax reliefs are subject to alteration and, in any case, the value of such reliefs and benefits may depend on an individual’s circumstances.

If you are in any doubt as to whether any course of action is suitable for you, then you should discuss the matter with a suitably qualified independent financial adviser or other specialist.