PSI8.1.15 - Lump Sum Benefits and Communication: Maximum Lump Sum Benefits - Final Remuneration

(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)

Final remuneration for the calculation of maximum lump sum retirement benefits will usually be the same as defined for the calculation of total benefits. Whether or not this is the case, final remuneration for lump sum purposes should be restricted in accordance with the provisions of the Finance (No2) Act 1987 and the Finance Act 1989 as described in Part 6, Section 4 for the members affected, i.e.

[PN Glossary]

F(No2)A 87

1. certain items of remuneration should be excluded altogether in respect of retirements on or after 17 March 1987 (see PSI 6.4.4-6),
2. the remuneration of high earners (£100,000) must be averaged over at least 3 years in respect of retirements on or after 17 March 1987 (see PSI 6.4.20),

Lump Sum Ceiling

[JOM 87, 88]

[PN Glossary]

1. the Finance (No2) Act 1987 now paragraph 6, Schedule 23, ICTA 88 and related discretionary practice, also imposed a ceiling of £100,000 on final remuneration for the purposes of calculating maximum lump sum benefits for employees who joined their schemes on or after 17 March 1987. This is subject to the transitional regulations or arrangements set out in PSI 2.3.23. (It applies only to such members who are not also Finance Act 1989 members as the latter will become capped by the lower permitted maximum (see also PSI 6.4.21)).

FA 89

The remuneration of Finance Act 1989 members (i.e., employees who, in the case of schemes which came into existence before 14 March 1989, became members on or after 1 June 1989, or, in the case of schemes established on or after 14 March 1989, became members at any time) is capped by the "permitted maximum" under section 590C ICTA 88 (see PSI 6.4.7-11).

(All the above are subject to the appropriate transitional regulations or arrangements as described in the paragraphs quoted).

[PN8.6]

Where a member's lump sum entitlement under the scheme accrues by reference to a definition of remuneration which produces a smaller figure than the member's final remuneration, then the smaller figure is to be used as final remuneration for the purpose of calculating the member's maximum lump sum benefit. However, subject to there being a suitable power in the rules, we would have no objection to the scheme trustees augmenting the member's lump sum entitlement up to the maximum based on the higher final remuneration figure provided the same measure of final remuneration is used to calculate total benefits.

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