RPSM03101560 - Technical Pages - Protecting pension rights from tax charges: Valuing pension rights at 5 April 2006: Practice Notes print May 1979

Retirement benefits scheme limit: preservation limit for retirement benefits schemes – Practice Notes published 1 May 1979

Following on from RPSM03101531, RPSM03101550 and RPSM03101551 if 5 April 2006 falls before an individual’s normal retirement date in a retirement benefit scheme and the individual has employer sponsored money purchase rights in the scheme, the calculation of MPP should be carried out on the basis that preservation applies to the benefits.

The relevant preservation calculation will be the one published in the IR 12 ‘Occupational Pension Schemes Practice Notes’ at the time the scheme was approved. The following is a direct copy of the advice published in the version of IR 12 ‘Occupational Pension Schemes Practice Notes’ published on 1 May 1979.

It applies to any schemes approved under s591 ICTA 1988 (previously s20 FA 1970) after 30 April 1979 and before 29 November 1991.

PN 13.4

“Because of the preservation requirements of the Social Security Act 1973 it may not be possible for certain schemes to restrict the benefits of an early leaver by reference to the 1/60th of final remuneration or N/NS x P formula, above viz:

(a) schemes giving a benefit of a constant proportion of final or average earnings for each year of service, at an accrual rate greater than 1/60th (Memorandum No 18 paragraphs 111 – 121)

(b) money purchase schemes and insured level annual pension premium schemes set up before 6 April 1974 (ibid paragraphs 127 and 137)

(c) “proceeds of policy” schemes (Memorandum No 78 paragraphs 251 – 259)

In such cases, the Inland Revenue limit will bite only if it is desires to give greater benefits that the minimum short service benefit.

Other schemes funded by level annual premium policies and securing benefits not exceeding the maximum approvable fraction of current remuneration may also give an early leaver the amount of deferred pension actually secured by premiums paid up to the date of his withdrawal, even if in excess of the amount calculated under the N/NS x P formula.”

When calculating the limit above, final remuneration shall be determined by reference to the maximum amount of earnings allowed under the rules of the scheme for the purposes of calculating the maximum retirement benefits for that individual.