Protected pension lump sums

HMRC has published draft legislation providing changes to the rules affecting the tax treatment of protected pension lump sums. Currently, transitional protection for lump sums of more than 25% is only available where an individual becomes entitled to all his or her pensions (that were not in payment before 6 April 2006), under a particular pension scheme, on the same day.

The Taxation of Pension Schemes (Transitional Provisions) (Amendment) Order 2010 will extend transitional protection where entitlement to an individual’s various pensions rights under a particular scheme arise within three months of each other. It will also ensure that, where the individual dies before the entitlement to the last of the pensions arises, transitional protection will be preserved.