RPSM03101531 - Technical Pages: Protecting pension rights from tax charges: Valuing pension rights at 5 April 2006: MPP – approved, s32 policies & post 13/3/89 statutory schemes

Retirement benefits scheme limit: maximum permitted pension for approved schemes, deferred annuity contracts and statutory schemes set up after 13 March 1989

The value of the maximum permitted pension (MPP) for arrangements under a scheme that is not a statutory scheme set up before 14 March 1989 is the maximum annual pension that a scheme approved under Chapter 1 of Part 14 of Income and Corporation Taxes Act 1988 could pay to an individual in good health on 5 April 2006 without giving HMRC grounds for withdrawing the scheme’s approval. In arriving at MPP two assumptions should be made, that

• if the individual was in the employment to which the arrangement(s) related on 5 April 2006, the individual is deemed to leave the employment on that date.
• the HMRC would permit immediate payment of pension benefits to individuals at any age, without affecting the approval of the scheme.

For the avoidance of doubt the calculation of MPP cannot include service after 5 April 2006, so for pre 1989 members the N/NS x P formula may apply when calculating the maximum permitted pension. However DWP preservation requirements may mean that the N/NS x P limit does not apply where benefits are provided under a money purchase arrangement.

If 5 April 2006 falls before an individual’s normal retirement date in a retirement benefits scheme and the individual has employer sponsored money purchase rights in the scheme, the calculation of MPP should be done on the basis that preservation applies to the benefits. The particular form of the preservation calculation to be used depends on when the retirement benefits scheme was approved. The relevant preservation calculation will be the one published in whichever version of the IR 12 “Occupational Pension Schemes Practice Notes” was in force when the scheme was approved. RPSM03101550 to RPSM03101570 detail the preservation limits that apply from 1 October 1974 to 5 April 2006.