RPSM03101570 - Technical Pages - Protecting pension rights from tax charges: Valuing pension rights at 5 April 2006: Practice Notes –effective 29 November 1991

Retirement benefits scheme limit: preservation limit for retirement benefits schemes - Practice Notes effective from 29 November 1991

Following on from RPSM03101540, and RPSM03101550 to RPSM03101560 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 Pensions 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 September 1991.

It applies to any schemes approved under s591 ICTA 1988 on or after 29 November 1991.

10.13

‘The maximum benefits an approved money purchase scheme may provide at normal retirement date for a member (whether or not entitled to continued rights) who left pensionable service prior to that date, is a deferred pension (including the pension equivalent of any deferred lump sum benefits) of the greater of:

(a) 1/60th of final remuneration for each year of service (up to 40 years) increased in accordance with paragraph 10.12 [PN10.12 - at a fixed rate not exceeding 5% per annum compound, or by a greater percentage but restricted so as not to exceed the increase in the retail prices index during the period of deferment], and

(b) the total benefit the member could have expected to receive at normal retirement date calculated on the same basis as applies for incapacity (see paragraph 6.2) [PN6.2 - the fraction of final remuneration the employee could have received had he or she remained in service until normal retirement date] together with any statutory revaluation increases required by the relevant Social Security legislation.

NB A power of augmentation cannot be used to increase a member's benefit up to this limit: an increase in benefit up to the limits set out in paragraphs 7.4 and 7.36 is, however, permissible.”

The following text was added to the end of paragraph 10.13 on 23 March 2001 (via the revised Practice Notes issued with Update 90).

“Where the member has a pension debit in relation to the scheme and does not fall within the administrative easement described in paragraph 7.7, the maximum benefits calculated in accordance with the requirements of this paragraph must be reduced by the pension debit (see paragraph 16.56).”

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.