PSI14.2.42 - Transfer Payments: Benefits from Transfer Payments - Benefits for Added Years - Calculation of Added Years

(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)

The added years are calculated by the receiving scheme's actuary. This involves the actuary in making assumptions about future trends in salary growth and investment performance. The actuary estimates the interest which the transfer payment will earn between its receipt in the scheme and the employee's NRD.

The result of this calculation is to produce an estimated capital sum from the transfer at NRD which is then converted into a pension equivalent using an appropriate annuity rate. The actuary then estimates the employee's final remuneration at NRD and, using the scheme's accrual rate, works out how many added years should be given.

Example

An employee with 15 years’ prospective service to NRD changes employment and a cash transfer value of £20,000 is paid to the new employer's scheme (which provides pension at an accrual rate of 1/60th for each year of service).

This will provide an annuity of £4,000 (converted at an annuity rate of 9:1).

Estimated final salary £30,000

Annuity of £4,000 is equivalent to 8/60ths of £30,000. Therefore 8 added years can be given.

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