As a consequential requirement of recent amendments* to the Finance Act 2004, HMRC has published a draft of The Registered Pension Schemes (Enhanced Lifetime Allowance) (Amendment) Regulations 2006 [PDF]. They apply to some death events where the deceased member had notified reliance on primary protection (PP) or enhanced protection (EP).

*paras 11A and 15A of Sch 36 FA 2004, inserted by paras 38 and 41 of Sch 23 FA 2006.

Where a lump sum death benefit is paid that is a benefit crystallisation event (ie either a defined benefits lump sum death benefit or an uncrystallised funds lump sum death benefit) and the amount exceeds the amount of the deceased member's available PP, a lifetime allowance charge will be due. However, the recipient of the lump sum may avoid this by notifying HMRC under the provisions of paragraph 11A so that the value of the PP can be increased (where appropriate)*. These Regulations specify the form and content of this notification.

*The PP value will only be increased if the value of the lump sum death benefit prospectively payable had the deceased member died on 5 April 2006 is greater than the PP value previously calculated.

Similar arrangements are specified to avoid loss of EP. For defined benefits and cash balance arrangements, EP will be lost where the value of the lump sum death benefits paid exceeds the available amount of the individual's "appropriate limit" - unless advantage is taken of para 15A Sch 36 FA 2004. Para 15A allows the value of an individual's appropriate limit to be increased (where appropriate)* where a recipient of a lump sum notifies HMRC.

*This limit will be increased if the current value of the individual’s 'pre-commencement rights to death benefits' (ie rights to lump sum death benefits on 5 April 2006 that would have been payable in respect of the pensionable employment to which the defined benefits and/or cash balance arrangements relate) is greater than the appropriate limit previously calculated in respect of pension rights relating to the employment.