PSI9.2.4 - Service after Normal Retirement Date: Benefits Deferred to Actual Retirement (Discretionary Practice Pre FA 89) - Methods of giving extra benefits - Additional N/60ths Pension and 3N/80ths Lump Sum

(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)

[PN7.45(b) & 8.34(b)]

Treating the actual retirement date as the NRD mainly benefits those with short service who are not entitled to maximum benefits. Where an employee is already on maximum benefits at NRD, extra benefits on this basis are limited to those relating to increases in final remuneration during the period of deferment. PSI9.2.2 (b) therefore offers an alternative which benefits very long service employees. This permits additional N/60ths pension and 3N/80ths lump sum to be given for years of service in excess of 40 which fall after NRD. This is subject to a maximum of 5 such additional years being given. Final remuneration is calculated at the actual date of retirement.

Example An employee with 39 years’ service before NRD and 8 years thereafter. A pension of 45/60ths and a lump sum of 135/80ths of final remuneration may be paid.
But the basic principle of a 2/3rds pension at NRD remains firm and only service after that age counts for additional benefits.
So an employee with 43 years’ service to NRD and 4 years’ service thereafter is restricted to a pension of 44/60ths and lump sum of 132/80ths of final remuneration.

Where a pension debit is taken into account (see PSI9.2.2) the maximum pension fraction is 45/60ths less the pension debit and 44/60ths less the pension debit respectively. The lump sum must not exceed

for a Finance (No 2) Act 1987

• 2.25 x initial rate of pension payable after reduction to take account of the pension debit

and for a pre Finance (No 2) Act 1987 member the greater of

• 2.25 x 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, say 135/80ths or 132/80ths respectively, reduced by an amount of 2.25 x the pension debit.

The pension debit is calculated on the basis of the appropriate example in PSI9.1.14.