In this guide

This guide is for financial advisers only. It must not be distributed to, or relied on by, customers. The information on this page is based on our understanding of legislation as at May 2023.

The tax-free cash entitlement under an occupational pension scheme (OPS), an assigned OPS policy or a section 32 buyout policy (s32) could have been greater than 25% on 5 April 2006. If so, the scheme can record the tax-free cash entitlement as at 5 April 2006, and pay out a higher amount of ‘protected tax-free cash’ (as an authorised payment) than the tax rules post-5 April 2006 would normally allow.

This is straightforward if there is only one arrangement in respect of a single employment for an individual that has a protected tax-free cash amount. However, there can be situations where:

  1. Someone had more than one arrangement in the same OPS at 5 April 2006. In this situation, there will be one protected tax-free cash amount at 5 April 2006 based on length of service and final renumeration. HMRC guidance confirms that an individual can choose how to take their tax-free cash from each scheme. See HMRC’s Pensions Tax Manual guidance. Please note, that all the individual’s benefits from the arrangements in the scheme would need to be taken at the same time to allow the protected tax-free cash to be paid. See HMRC’s Pensions Tax Manual guidance.
  2. Someone was a member of more than one OPS for the same employment at 5 April 2006. Again, there will only be one protected tax-free cash amount at 5 April 2006 for the individual’s employment but how do you make sure the correct amount of tax-free cash is allocated to each scheme? This is covered in the rest of this section.

Each OPS should be looked at separately at 5 April 2006 to assess what tax-free cash is available from each, before arriving at the overall tax-free cash the individual is entitled to. The best way to demonstrate the way it works is to use an example.


Robert has three separate money-purchase OPSs in respect of the same employment. The total fund value is £500,000, split as follows:

OPS1 = £250,000

OPS2 = £150,000

OPS3 = £100,000

The maximum tax-free cash for the employment was calculated as £130,000 based on salary and service up to 5 April 2006. All three schemes allow tax-free cash up to HMRC’s maximum for service up to 5 April 2006.

The maximum tax-free cash at 5 April 2006 should be calculated as:


Fund value at 5 April 2006

Scheme lump sum









£100,000 (capped at fund value)




As the total aggregated scheme lump sum of £360,000 is £230,000 more than the pre 6 April 2006 HMRC maximum tax-free cash of £130,000, the amount of tax-free cash that can actually be paid must be reduced proportionately across all schemes. This is done as follows:

In effect, the formula for calculating the final tax-free cash amount from each scheme is:

Scheme lump sum – (excess lump sum x scheme lump sum/total lump sums)

The final tax-free cash amount in OPS1 is £46,944 or 18.77% of the fund, which is less than the 25% allowable. This amount can therefore be increased to 25% of the fund value so that the actual tax-free cash payable is £62,500.

In comparison the final tax-free cash figures from OPS2  and OPS3 show Robert is entitled to the higher protected tax-free cash at 5 April 2006. The overall tax-free cash is increased from £130,000 to £145,556 as a result.

In summary, the steps to calculate the overall tax-free cash at 5 April 2006, where there is more than one OPS relating to the same employment are:

Step 1:

Calculate the tax-free cash for each scheme as at 5 April 2006. This will produce a cash amount per scheme, which should be the lowest of:

the cash amount allowed under the scheme rules,

the HMRC maximum tax-free cash amount, and

the actual fund value

Step 2:

Add up the tax-free cash amounts (this will give you the aggregated scheme lump sum) and compare this to the HMRC maximum tax-free cash amount for the employment

Step 3:

If the total scheme lump sum figure is higher than the HMRC maximum tax-free cash, then the cash amount per scheme (calculated in step 1) should be proportionately reduced to make the total equal to the HMRC maximum.

Step 4:

If the tax-free cash amount under any scheme is less than 25% of the fund value, then the actual amount payable under that scheme can be increased to 25%. This can result in the overall pre 6 April 2006 HMRC maximum tax-free cash amount being exceeded.

Although the example used here is for someone who is a member of more than one money-purchase OPS, the same approach should be used for an individual who has, for example, a section 32 buyout, an assigned policy and an OPS for the same employment.

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