Before the abolition of protected rights on 6 April 2012 a short service lump sum could not be paid if it included a member's protected rights (although partial refunds of non-protected rights were permitted under the Finance Act 2004). However, pension schemes can now amend their rules to allow for short service refund lump sums to include protected rights.
If a scheme has not yet changed its rules to allow such payments to be made, any full repayment which includes protected rights is technically an unauthorised payment and is subject to an unauthorised payment charge by HMRC.
To address this situation the Government has now issued the Registered Pension Schemes (Authorised Payments) (Amendment No.2) Regulations 2012 which will allow schemes that are prohibited under their Scheme rules to paying the full refunds without them being unauthorised. Consultation closed on 27 June 2012, but if these regulations come into force this will allow the schemes to pay full refunds and then amend their rules in their own time.
A copy of the draft regulations can be found at http://www.legislation.gov.uk/uksi/2012/1881/contents/made.
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