PSI8.2.41 - Lump Sum Benefits and
Communication: Commutation Factors - Procedure - Acceptable
factors
-
(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)
The commutation factors can be accepted if they satisfy one
of the following tests:
- the factors have been centrally agreed and
you can confirm this from SF70/132, sub-file 5, or
- the factors for continued rights members do
not vary from the appropriate table of "acceptable commutation
factors" at Appendix A, by more than 4%; for example, for a man
aged 65 per Table 1 a figure of up to 9.67 (9.3 x 1.04) is
acceptable, or
- the factors, although excessive by
reference to b. above, are unlikely to produce excessive total
benefits and there is no power of augmentation or provision for
increases in benefits without prior reference to this office, for
example:
- in defined benefit schemes where the scale
benefits are materially less than N60ths of final salary, or
- in salary grade schemes where the annual unit
of pension does not exceed 2% of pay, or
- in individual arrangements where the employee's
aggregate pension and lump sum are significantly less than the
maximum approvable.
[7.42]
It is now accepted that level unisex factors that take
account of the male/female ratio in the scheme may be used. This
ratio should take account of service and benefit experience of male
and female members and not just their numbers.
This practice is not extended to enhanced commutation
factors, though schemes may use enhanced unisex factors. Our
requirement is that they meet our criteria for all male factors,
i.e. as though all members were male. This is understood to not be
contrary to European directives on equalisation.
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