Some time ago I posted the following:
If the trustees of a Money Purchase pension scheme want to allow members to take 25% out of their pension fund tax free when they "are entitled to the pension" are they allowed to within the law.
(Originally my pension fund said that I could do this - then they said the law did not allow it)
I received various responses - I believe I now have the answer:
The Finance Act 2004 Schedule 29 defines the lump sum as "one the member becomes entitled to in connection with the member becoming entitled to a relevant pension."
Good - this is in line with my views - so am I entitled to the pension and hence the lump sum?
"For the purpose of this part: a person becomes entitled to a pension under a registered pension scheme - ............................. (b) ..... when the person first acquires an actual (rather than a prospective) right to receive the pension.
Good - I do have an actual right as I have passed age 55 - prior to this I would have had a prospective right - so looks like I will be OK.
BUT - no - not the case: A member with the expectation of receiving pension payments at sometime in the future is said to have a 'prospective right' to pension. For the purposes of the legislation, the member only becomes 'entitled' to a pension benefit at the point when they first obtain an 'actual right' to receive it. This 'actual right' has to be distinguished from their 'prospective right'. An 'actual right' is when a member has the right to a benefit without having to fulfil any further conditions or take any further actions, e.g.
* having to agree to or authorise the payment of a benefit, or * having to obtain an employer's or scheme trustee/ scheme administrator's agreement or co-operation to benefit payment. Although the term 'actual right' refers to the receipt of real benefit, rather than merely being in possession of a right to obtain it, it does not necessarily refer to the date a benefit is actually paid out.So you only have the "actual right" to the pension effectively when you receive it. The naïve would think that you have an actual right to it, and then you take it; not so, it is the other way round.
As to "entitled" : you only become entitled to the pension when you have an "actual right" to it; and you only have an "actual right" to it when you have "taken" it.
Therefore you are only entitled as a direct result of taking the pension.
Silly me!!