PSI10.1.32 - Retirement before Normal Retirement Date: General – Pension Sharing on Divorce – Pre FA 89

(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)

Total Benefits

Where an employee’s benefit entitlement in the scheme is

• permanently reduced by a pension sharing on divorce order (see PSI3.5.4), and
• the pension debit must be taken into account for Revenue limits purposes (see PSI6.5.89)

the maximum permissible total pension benefit for the employee must not exceed

• the amount of pension benefit that could have been paid to the employee had there been no pension sharing on divorce order (see PSI10.1.12)

less

• the pension equivalent of the pension debit (see PSI10.1.33).

Where the N/NS x P calculation applies, the pension debit is set against P before applying N/NS.

Lump sums

The maximum permissible lump sum benefit must not exceed

for a Finance (No 2) Act 1987 member

• 2.25 x initial rate of pension payable (see PSI10.1.12) after reduction to take account of the pension debit (see PSI10.1.33) where the lump sum is by commutation of pension, or
• 3 x initial rate of pension payable (see PSI10.1.12) after reduction to take account of the pension debit (see PSI10.1.33) where the scheme rules provide for a pension and separate lump sum

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

• 2.25 x initial rate of pension payable (see PSI10.1.12) after reduction to take account of the pension debit (see PSI10.1.33) where the lump sum is by commuation of pension, or
• 3 x initial rate of pension payable (see PSI10.1.12) after reduction to take account of the pension debit (see PSI10.1.33) where the scheme rules provide for a pension and separate lump sum, or
• the maximum approvable lump sum determined in accordance with the scheme rules as if there had been no pension sharing on divorce order (see PSI10.1.12), reduced by an amount of

2.25 x the pension debit (see PSI10.1.33) where the lump sum is by commutation of pension, or
3 x the pension debit (see PSI10.1.33) where the scheme rules provide for a pension and separate lump sum.

Where the maximum approvable lump sum for a pre Finance (No 2) Act 1987 member is first determined in accordance with the scheme rules as if there had been no pension sharing order and the formula N/NS x LS is used (see PSI10.1.12), the amount of 2.25 x the pension debit is deducted from the result of the formula and not just from the LS part of the calculation.