(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)
Where revaluation of the deferred pension equivalent of a
pension debit needs to be considered when an employee takes
benefits after normal retirement date (see
PSI9.1.13), the method of revaluation
will depend on whether the scheme gives defined benefits or money
purchase benefits.
The rate of revaluation up to normal retirement date is the same
as that which applies under Social Security legislation for
deferred defined benefits generally (see
PSI6.5.97). The rate of
revaluation after normal retirement date should be the same rate of
revaluation that the scheme would offer/be required to apply in
respect of members with deferred benefits at normal retirement
date, who continue to defer the payment of those benefits. This
applies whether the employee’s benefits are calculated by
reference to service and salary at normal retirement date or at
eventual retirement (or age 75 if sooner in the case of a Finance
Act 1989 member).
It is unlikely that a scheme would give no increase to a
deferred benefit in the period between normal retirement date and
the date of actual payment but if there were no increase, the value
of the deferred pension equivalent of the pension debit established
at normal retirement date (the amount of £6,000 in the example
in
PSI6.5.95) would not have to
increase any further.
The effects of preservation legislation is probably going to
require that at the date that the deferred pension comes into
payment it should at least be equal to the pension that would have
been paid at normal retirement date together with the increases
that would have been awarded in the period from normal retirement
date to the date of actual payment of the deferred benefit, the
scheme may have been required to pay LPI increases to the pension
had it come into payment at normal retirement date. As well as
meeting any statutory requirements, schemes may also offer late
retirement enhancements, such as actuarial increases, to pensions
deferred beyond normal retirement date (see
PSI13.3.19).
Hypothetical deferred pension equivalent of pension debit at
divorce is £4,000 and at normal retirement date, 60, it has
increased to £6,000 in line with statutory revaluation orders
that would have applied to deferred benefits generally (see Example
in
PSI6.5.95).
At normal retirement date the employee continues in the
employment and finally retires at age 65 – the
employee’s benefits are based on service and final
remuneration at the time of retirement.
The deferred pension equivalent of the pension debit is
revalued on the same basis as the scheme would revalue an actual
deferred pension between a member’s normal retirement date
and taking benefits at age 65 – in this example the scheme
would give an actuarial increase to a deferred pension of 10% a
year after normal retirement date and allow an increase to reflect
to LPI increases that would have been given had the pension been
paid from normal retirement date (for the purpose of this example
only the LPI increases are taken as 3.5% a year)
The notional actuarial increase to the pension debit is
£3,663 (10% a year increases on £6,000)
The notional LPI increase to the pension debit is £1,126
(3.5% a year increases on £6,000)
Final pension debit figure for Revenue limits purposes is
£10,789 (£6,000 + £3,663 + £1,126)
How the deferred pension equivalent of the pension debit is revalued depends on whether or not the scheme gives late retirement enhancements to deferred benefits for the period from normal retirement date to eventual retirement or age 75, if sooner. If the scheme gives late retirement enhancements, the deferred pension equivalent of the pension debit established at normal retirement date (see example in PSI6.5.96) should be increased by the same enhancement factor. If the scheme does not give late retirement enhancements to deferred benefits and the employee’s benefit is calculated on the basis of service and salary at the time of eventual retirement, the deferred pension equivalent of the pension debit should continue to be revalued by reference to the Statutory Revaluation that would apply to deferred defined benefits generally even though it is in respect of a period after normal retirement date when statutory revaluation would not normally apply.
Hypothetical deferred pension equivalent of pension debit at
divorce is £6,245 and at normal retirement date, 60, it has
increased to £13,949 in line with statutory revaluation orders
that would have applied to deferred defined benefits generally (see
Example in
PSI6.5.96).
At normal retirement date the employee continues in the
employment and finally retires at age 65 – the
employee’s benefits are based on service and final
remuneration at the time of retirement.
The final pension debit figure for Revenue limits purposes is
£17,053 (the deferred pension equivalent of the pension debit
has continued to be revalued by reference to statutory revaluation
rates for the period between normal retirement date and eventual
retirement – for the purpose of this example only the rate
has been taken as 4.1% a year).
If the scheme does provide late retirement enhancements, say
by use of a factor of 1.42, the pension debit figure at normal
retirement date of £13,949 should be increased by the same
factor – the final pension debit figure for Revenue limits
purposes would then be £19,807 (£13,949 x 1.42).
