PSI24.1.2 - Pension Credit Benefits – Form of Benefits – creation of pension credit benefits

(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)

[PN6A.1]

When a scheme receives an order to share a member’s benefits the pension credit benefit is created. A capital value is placed on the member’s benefit entitlement in the scheme in much the same the scheme would have provided a cash equivalent transfer value (CETV) of the benefits had the member asked for a transfer. The member’s CETV will be debited by a percentage stated in the pension sharing order. The amount representing the reduction of the CETV is then used to provide the pension credit benefit for the member’s ex-spouse. The pension credit benefits must stay within a tax approved arrangement. The scheme can either

• invite the ex-spouse to join the scheme in his or her own right – the “internal transfer option”, or
• transfer the pension credit benefit rights to some other approved pension arrangement such as another scheme where the ex-spouse is already an employee member, a buy-out contract or a personal pension scheme – the “external transfer option”.

It is for the scheme to decide whether to offer an internal or external transfer to an ex-spouse. Subject to any requirements or options under Social Security legislation (see PSI4.1.1c), there is no objection to schemes

• only offering external transfers, or
• only internal transfers, or
• deciding on discretionary basis who will be offered an internal or external transfer, or
• giving the ex-spouse the option of an internal or external transfer.