PSI10.1.27 - Retirement before Normal Retirement Date: General - Membership of Two Schemes of the Employer - Continued Life Cover

(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)

(This text has been withheld because of exemptions in the Freedom of Information Act 2000)

[PN 7.26 and 7.38-39]

The provision of continued life cover after early retirement, other than early retirement on incapacity grounds, is no longer permitted for Finance Act 1989 members joining schemes on or after 1 October 1991. Where a member for whom continued life cover is still permissible (a member with continued rights (see PSI2.3.23) or a Finance Act 1989 member who joined the scheme prior to 1 October 1991) takes early retirement benefits under one scheme of the employer as in PSI10.1.25-26 above and deferred benefits under another, and the scheme in which benefits are deferred continues to provide life cover, the cover should be treated as a retirement benefit as follows:-

1. The value of the continued life cover up to NRD must be taken into account where necessary (see PSI6.2.1) when calculating the lump sum payable by the first scheme (see PSI6.2.5). The lump sum from the second scheme will be limited as in PSI10.1.26.
2. The pension equivalent of the value of this continued life cover must be included where necessary (see PSI6.2.1) in the calculation of the aggregate pensions payable from both schemes (see PSI6.2.6).
3. The lump sum death benefit must be payable to the deceased's legal personal representatives, or surviving spouse (see PSI6.2.12). It must not be distributable under discretionary powers and so escape IHT.
4. Where the continued life cover is provided under a term life policy the premiums may be referred to "pension business" (see PSI6.2.10).

The general principles explained above and in Section 2 of Part 6 ( PSI6.2.1) apply where a member of a single scheme of the employer retires early (other than for incapacity) and is given continued life cover after retirement. You should note in particular that the exceptions in PSI6.2.3 also apply to employees retiring early. The conditions in a. to d. above do not have to be set out in the rules of each scheme. But if you find out that an employee intends to exercise different options under each scheme, explain the effect of any continuing life cover on the benefits payable.