PSI14.2.12 - Transfer Payments: Benefits from Transfer Payments - Transferred Benefits on a Money Purchase Basis - Benefits On Early Retirement

(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 the employee retires early, the transfer payment will buy less benefits than if he or she had remained in service until NRD because of the loss of future interest. The maximum pension benefits before commutation that a member can receive on early retirement for reasons other than incapacity where a transfer payment has been received from an earlier scheme is the greater of:

1. T + (N/60ths of final remuneration), and
2. T + (uplifted benefits - see PSI10.1.7 and PSI10.1.12)

where T is the amount of pension secured by the transfer payment. Where uplifted benefits are given (on the N/NS x P or N/30ths formula as appropriate), it should be borne in mind that P/N30ths does not include the transfer benefit although it may be necessary to take account of its current pension value in the calculation of P/N30ths.

The same principle applies to lump sum benefits for pre-17 March 1987 continued rights members where they are uplifted on the N/NS x LS formula.

For members with pre-1 June 1989 continued rights in the receiving scheme, any pension payable from a transfer payment is left out of ‘A’ in the formula in PSI8.1.24 in calculating the maximum permissible lump sum on early retirement in respect of service and final remuneration with the current employer.

The amount of lump sum payable from a transfer value in respect of a member with continued rights in the receiving scheme, is the amount certified (see PSI14.2.21) although a certificate is not required where a transfer takes place in the circumstances set out in PSI14.1.24. Where such a member retires early that part of the total benefit from the transfer payment which could be taken in lump sum form should be reduced by the same proportion that the expected NRD benefit has been reduced because of early retirement.

For members who come within the Finance Act 1989 regime in the receiving scheme, then subject to PSI14.2.20, the maximum lump sum payable from the transfer payment is calculated as 2.25 x the initial annual rate of the member’s early retirement pension (before commutation or allocation) from the transfer payment.