(This archived guidance relates to HMRC discretionary
practice before the 6th April 2006. For current guidance on
Registered Pension Schemes see the Registered Pension Schemes
Manual)
Where an employee has benefits rights in a scheme that relate
to both an employment with a participating employer and a pension
credit, the employee may pay contributions up to the limit of 15%
of remuneration provided
If the scheme treats the employee benefit rights and the pension
credit rights separately (see
PSI24.1.6-7) the pension
credit rights will not have a bearing on the amount of
contributions that can be paid by the employee.
Where the employee benefit rights and the pension credit
rights are not treated separately the benefits arising from the
pension credit rights must be taken into account when applying the
limits on the benefits that can be paid as a result of employee
scheme membership which might affect the amount of employee
contributions that can be paid.
Example
The maximum permissible pension at normal retirement date for
employee A is £12,000
Employee A pays contractual contributions of 5% of
remuneration
The employer and contractual employee contributions will
provide a pension of £9,000
Employee A pays avcs of, say, 10% of remuneration to fund for
additional pension £1,500
Employee A and Employee B are married and members of the same
scheme – they divorce
Employee A receives a pension credit from the benefit rights
of Employee B
The pension credit will provide a pension at Employee
A’s normal retirement date of £2,000
Scheme treats employee benefit rights and pension credit
rights separately
Employee A can continue to pay avcs of 10% of remuneration
Scheme does not treat employee benefit rights and pension
credit rights separately
If Employee A continues to pay avcs at 10% of remuneration
maximum permissible benefits will be exceeded - £9,000 +
£1,500 + £2000 = £12,500
Employee A’s avcs are reduced to, say, 7% of
remuneration to fund for a reduced additional pension of
£1,000
