PSI8.1.2 - Lump Sum Benefits and Communication: Maximum Lump Sum Benefits - General

(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)

Scheme rules providing lump sum retirement benefits can be expressed to give members either:

[PN8.5]

1. an option (which may be subject to the consent of the employer or trustees) to commute part, or all, of their pension in return for a lump sum - most private sector schemes give the lump sum in this way - or,
2. the right to a separate lump sum (as in the Civil Service Scheme). This method is almost exclusively confined to public sector schemes (see PSI6.5.3).

The lump sum retirement benefit is a relevant benefit and may thus be given by a scheme whether or not any pension is paid in addition. Where, however, in the case of a Finance (No2) Act 1987 or Finance Act 1989 member no pension is provided, it is not possible to give a lump sum greater than 3/80ths of final remuneration for each year of service (up to 40 years). This contrasts with the position for pre-17 March 1987 continued rights members where the maximum (uplifted) lump sum may be paid even though total benefits under the scheme, valued in pension terms, are less than the maximum approvable (see Part 6) provided that the benefits are based on undynamised final remuneration (see PSI8.1.18). For Finance (No2) Act and Finance Act 1989 members the maximum lump sum is directly linked to the total benefits being provided (see PSI8.1.1 and PSI8.1.23-25).