RPSM03102050 - Technical Pages: Protecting pensions rights from tax charges: Primary protection: Increase for compensation

Increase of the primary protection factor due to compensation for poorly performing investments

[Articles 9 – 11 The Taxation of Pension Schemes (Transitional Provisions) Order 2006 – SI 2006/572]

An individual’s primary protection factor may be increased if all the following conditions are met.

1. Compensation is paid or determined as being payable to a pension scheme in the period 6 April 2006 to 5 April 2009 in respect of the poor performance of an investment owned by the scheme.
   
2. The relevant investment was owned by the scheme before 6 April 2006.
   
3. The relevant investment was offered for sale to the public on the open market.
   
4. The amount of compensation is calculated on an arm’s length basis.
   
5. The scheme is either an other money purchase arrangement, or a hybrid arrangement where one of the benefit options is other money purchase benefits.

The primary protection factor will be adjusted by increasing the amount of ‘RR’ (the value of the pension rights on 5 April 2006) in the formula (RR – SLA)/SLA by the amount of compensation shown below.

Other money purchase arrangements

‘RR’ will be increased by the market value amount of the compensation.

Hybrid arrangements

‘RR’ will be increased by the amount by which the market value of the compensation plus the value of the other money purchase rights calculated as at 5 April 2006 is more than the value of the uncrystallised rights in the hybrid arrangement calculated as at 5 April 2006.

RPSM03102060 gives an example.