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Scheme-specific protected tax-free cash (over 25%)
The quiet exception to “25% tax-free”. A protected lump sum from an old scheme can pay more — which is precisely when evidencing it backfires.
Based on HMRC’s Pensions Tax Manual (PTM063130, PTM174000) and Finance Act 2024 Schedule 9.
6 min read · Last reviewed
Almost everything about the lump sum allowance assumes tax-free cash is 25% of what is crystallised. Scheme-specific protected tax-free cash is the exception — and because the published TTFAC guides flag it as the case where a certificate costs a client allowance, it is worth understanding properly rather than as a footnote.
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. When the single tax regime came in at A-Day, that larger entitlement was not swept away: it was preserved as scheme-specific lump sum protection, recalculated by a statutory formula each time benefits are taken. A member with this protection can still draw more than a quarter of their pot tax-free today.
Where an individual’s lump sum rights under a scheme exceeded 25% of the value of their rights on 5 April 2006, those rights can be protected and paid as a higher tax-free lump sum, recalculated by the prescribed formula at the time of payment.
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: it means the member took more, so the evidenced figure is higher than the default, and a certificate increases the deduction.
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):
- Fund value at crystallisation (illustrative)
- £400,000
- Standard tax-free cash at 25%
- £100,000
- Protected entitlement (illustrative, ~40%)
- £160,000
- Extra tax-free cash from the protection
- £60,000
Those figures are illustrative — a placeholder to show the shape, not a computed result. 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 the evidence side by side and flags which one wins; where scheme-specific protection is present, the default usually does.
PTM063130 (scheme-specific lump sum protection) · PTM174000 (TTFAC) · FA 2024 Sch 9
Common questions
- What is scheme-specific protected tax-free cash?
- A preserved right to a tax-free lump sum larger than 25% of the fund, held by members whose scheme rules on 5 April 2006 gave them more. The entitlement is recalculated by a statutory formula when the cash is taken, and it survives the move to the post-2024 lump sum allowance.
- Why does scheme-specific protected cash make a TTFAC backfire?
- A transitional tax-free amount certificate replaces the standard 25% assumption with the tax-free cash actually paid. Where a scheme-specific entitlement paid more than 25%, the evidenced figure is higher than the default — so the certificate increases the deduction and loses allowance instead of recovering it.
Sources & grounding
- Concept + rule: scheme-specific lump sum protection (PTM063130) preserves a member’s right to tax-free cash above 25% where, on 5 April 2006, the entitlement under the scheme exceeded that. The protected amount is recalculated by a statutory formula at the point of payment.
- NOT engine-modelled as a regime: the engine does not compute a scheme-specific ceiling; calculateTTFAC (calc-engine/pension/ttfac.ts) only DETECTS it, flagging schemeSpecificPCLSFlag when an event’s evidenced actual tax-free cash exceeds 25% of the lifetime allowance used. Worked percentages in-body are clearly labelled ILLUSTRATIVE.
- The TTFAC tie-in reuses the published, engine-computed case in /learn/ttfac-when-a-certificate-makes-things-worse: same 80%-of-LTA history, evidenced TFC £250,000 → certificate costs £35,380 vs the default (calculateTTFAC; scripts/ground-phase-c.mts). No new figure is introduced for that case.
For planning and illustration purposes only. Verify all inputs against source documents. This explainer does not constitute financial or tax advice.