PSI8.1.50 - Lump Sum Benefits and Commutation: Maximum Lump Sum Benefits – Pension Sharing on Divorce – Pre Finance (No 2) Act 1987

(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)

[PN8.26]

For an employee

• who is a pre Finance (No 2) Act 1987 member (see PSI2.3.22), or
• who has continued rights to pre Finance (No 2) Act 1987 membership (see PSI2.3.23), and
• whose benefits are permanently reduced by a pension sharing on divorce order and the pension debit needs to be taken into account for Revenue limits purposes (see PSI8.1.44)

the maximum approvable lump sum benefit obtained by commutation of pension must not exceed the greater of

• 2.25 x the initial rate of pension payable after reduction to take account of the pension debit, or
• the maximum approvable lump sum determined in accordance with the scheme rules as if there had been no pension sharing on divorce order reduced by an amount of 2.25 x the pension debit

and the maximum approvable lump sum in a scheme that provides a pension and separate lump sum must not exceed

• 3 x the initial rate of separate pension payable after reduction to take account of the pension debit, or
• the maximum approvable lump sum determined in accordance with the scheme rules as if there had been no pension sharing on divorce order reduced by an amount of 3 x the pension debit

For this purpose

• the initial rate of payable pension is determined in accordance with PSI8.1.25 – the pension is not subject to the permitted maximum (see PSI6.4.11), and
• the pension debit is calculated in the same way as it is calculated for maximum permissible pension benefits (see PSI6.4.94-99).

This limit applies when the employee retires before (including in cases of incapacity), at or after normal retirement date and when the employee leaves pensionable service without immediate payment of benefits.