Scheme-specific protected tax-free cash (over 25%)

Scheme-specific protected tax-free cash is a preserved right to a tax-free lump sum above 25% of the fund. The lump sum allowance otherwise assumes every crystallisation took 25% — this is the exception that breaks the assumption. It also matters in practice: the published TTFAC guides use it as the main example of a certificate that costs a client allowance rather than recovering it.

The rule: a pre-2006 right to more than 25%

Before 6 April 2006, some occupational schemes — and some older personal pension and section 32 contracts — gave members a tax-free lump sum worked out on a basis that could exceed 25% of the fund. A-Day did not sweep that larger entitlement away. It was preserved as scheme-specific lump sum protection, worked out by a statutory formula when the benefits are taken. The member must normally take all their benefits under that scheme on the same day, and phasing them or making a non-block transfer out can lose the protection (PTM063130). A member with this protection can still draw more than a quarter of their pot tax-free today.

Why it flips the TTFAC decision

Under the post-2024 rules a member who used the old lifetime allowance starts with a standard transitional deduction — 25% of the percentage of lifetime allowance they used — built on the assumption that every past crystallisation took the maximum 25%. A transitional tax-free amount certificate replaces that assumption with the tax-free cash actually paid. Usually that recovers allowance, because defined-benefit pensions took less than 25%. Scheme-specific protection is the mirror image. The member took more, so the evidenced figure beats the default, and a certificate increases the deduction.

One caution. HMRC’s guidance (PTM174300) frames the certificate route for someone who holds complete records and can show that less than 25% of the benefits they took before 6 April 2024 were taken as tax-free lump sums. A member whose scheme-specific protected cash paid more than 25% falls outside that framing, but the same page says a certification administrator may refuse an application only for insufficient evidence. So the question for this member is not whether a certificate can be issued but whether it would help, and here it usually would not.

The published case makes the size of it concrete. On an 80%-of-lifetime-allowance history, a member whose evidenced tax-free cash was £250,000 — the kind of figure a scheme-specific entitlement produces — loses £35,380 of lump sum allowance by certifying, against the default. That figure is computed by our engine in the TTFAC guide; the point here is why the evidenced cash was so high.

A worked illustration

The arithmetic of the protection itself is best shown with round, clearly illustrative numbers (the exact figure comes from the statutory formula and the scheme’s records, not from a general calculator):

Figures are illustrative and rounded to show the shape of the calculation — run your own case for the exact position. The real protected amount is fixed by the statutory formula applied to the member’s own 5 April 2006 rights, which a scheme administrator confirms. What matters for planning is the direction: where a scheme-specific entitlement is in play, the actual tax-free cash beats 25%, and a certificate works against the client.

What to do with it

Treat any sign of pre-2006 protected cash — a section 32 buy-out, an old occupational scheme, a certificate showing more than 25% — as a reason to model both paths before applying for a certificate. The TTFAC calculator runs the default and evidence sides together and flags which one wins. Where scheme-specific protection is present, the default usually does.

PTM063130 (scheme-specific lump sum protection) · PTM174300 (TTFAC) · FA 2024 Sch 9