PSI8.1.27 - Lump Sum Benefits and Communication: 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)

It will clearly be administratively beneficial if members subject to the very complex 1987 regime formula in PSI8.1.24 switch to the much simpler 1989 basis in PSI8.1.25 of calculating lump sum benefits. An employee who, on or after 17 March 1987 and before 1 June, became a member of a scheme which was approved before 27 July 1989 can statutorily elect under paragraph 29, Schedule 6 Finance Act 1989 to be treated as a Finance Act 1989 member. Such an election means that the overriding legislation in Part II, Schedule 6 Finance Act 1989 applies and that the member becomes subject to the "permitted maximum" (see PSI6.4.7-11). The member does not, however, become automatically subject to the post-Finance Act 1989 basis for early/late retirement since this was a discretionary practice change (see PSI9.1.11). To be effective the statutory election must be made at or before the earliest of:

9. the commencement of employer funded benefits (See PSI25.3.5 in relation to the payment of AVCs);
10. benefits being bought-out or otherwise being transferred outside the employer's scheme(s), or
11. the member's 75th birthday.

[PN7.38]

Additionally, members who are subject to the 1987 regime by virtue of discretionary practice rather than the Schedule 23, ICTA 1988 override (ie, in a scheme approved on or after 23 July 1987) may opt to be treated as Finance Act 1989 members in which case they must adopt the whole”89 package”. This means adopting the new discretionary limits on the provision of early and late retirement benefits as well as the Finance Act 1989 statutory changes. The discretionary option must be exercised within the same time scales as apply to the statutory election above.