PSI8.1.25 - Lump Sum Benefits and Commutation: Maximum Lump Sum Benefits - Finance Act 1989

(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)

[PN8.7]

For Finance Act 1989 members lump sum benefits greater than 3N/80ths of final remuneration for each year of service may be given, up to an amount equal to 2.25 times the initial annual rate of pension payable before commutation or allocation to provide for a widow(er) or dependants. The initial rate of pension here in the context of PSI6.1.16 means the greater amount paid up to SPA but in the context of PSI7.1.8 means the pension paid after the option has been exercised.

Where a member defers his or her AVC benefits in accordance with PSI25.3.1 the pension equivalent of the deferred AVC fund will not count towards the initial rate of pension (see PSI25.3.7).

Where schemes provide a separate pension and lump sum benefit (see PSI6.5.3 and PSI8.1.2 (b)) the maximum lump sum benefit is 3 x the initial annual rate of the separate pension (but see PSI8.1.35). A different limit applies where an employee’s benefit rights in the scheme 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). Again, as with pre-1 June 1989 continued rights members, in calculating the maximum permissible lump sum in respect of a Finance Act 1989 member, the value of any retained lump sum retirement benefits (see PSI8.1.31) may be ignored.