RPSM03103010 - Technical Pages: Protecting pre 6/4/06 pension rights from tax charges: Pension debits

Pension debits as a result of a pension sharing order on divorce

An individual’s pension rights may be reduced as a result of the rights becoming subject to a pension debit on or after 6 April 2006.

This would occur if the individual divorced and the pension rights became the subject of a pension sharing order. In such a case, the value of the pension rights under primary protection would be recalculated and the individual would be given a new personal lifetime allowance.

The reduced personal lifetime allowance applies to all benefit crystallisation events that take place after the individual’s rights have been reduced by a pension debit. The reduction due to the pension debit occurs on the effective date of the pension sharing order. The Welfare Reform and Pensions Act 1999 refers to the effective date as the transfer date. This will not necessarily be the same as the date that the individual’s rights in the arrangement(s) under the scheme are actually split.

Where a pension debit reduces an individual’s protected pension rights to a value below £1.5 million, that individual will lose primary protection and revert to the standard lifetime allowance.