PSI8.1.7 - Lump Sum Benefits and Communication:
Maximum Lump Sum Benefits - Contracted-out Schemes
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(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)
Some members of contracted-out schemes may have their
commutation rights at retirement restricted or denied altogether.
This can happen where:
[PN8.2]
- the member retires before State Pensionable
Age (SPA);
- the value of the Guaranteed Minimum Pension
(GMP) at SPA is not known because its revaluation between
retirement and SPA is not on a fixed basis, (see Part 13 Section
1), and
- It is not certain whether sufficient funds
will be available to pay the GMP if the commutation option is
exercised.
When the member's GMP is finally known at SPA, the member can
commute any pension in excess of the GMP for a lump sum provided
sufficient funds are available. In the event that the earlier
restriction of lump sum proves excessive, a further lump sum within
the maximum that was otherwise payable at the earlier date of
retirement may be taken at SPA. The further lump sum may not be
enhanced for the period of its deferment. This is because the
commuted part of the pension will have been in payment for this
period. The GMP can be commuted only on grounds of triviality (see
Section 3).
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