(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)
An approved scheme may provide, as part of the total
retirement benefits, lump sums up to certain limits, principally
1½ times final remuneration at NRD (see
PSI8.1.15-21). As with total benefits
(see
PSI6.5.1) the basic level of
lump sum benefits (3/80ths) which are approvable is calculated by
reference to an employee's length of service with the employers and
his or her final remuneration. For pre-17 March 1987 continued
rights members larger lump sum benefits are similarly based on
service and final remuneration but for Finance (No2) Act 1987 and
Finance Act 1989 members, larger lump sums are limited by reference
to a multiple of total pension benefits (see
PSI8.1.24-25). These lump sums are
tax-free (see
PSI17.2.13) so, not
surprisingly, they are a feature of most schemes. We therefore need
to ensure that they are adequately controlled by scheme rules. The
aggregation provisions described in
PSI6.1.3-4 are equally
relevant to the calculation of maximum approvable lump sum benefits
as are the requirements of
PSI6.4.7-10 in relation to
members without continued rights. There might also be an affect on
the amount of lump sum benefit payable where an employee’s
benefit rights are reduced by a pension sharing on divorce order
and the pension debit must be taken into account for Revenue limits
purposes (see PSI8.1.44).
