RPSM03104032 - Technical Pages: Protecting pension rights from tax charges: Enhanced protection: Overview: Surrendering excess rights

How excess rights can be surrendered

[The Registered Pension Schemes (Surrender of Relevant Excess) Regulations 2006 - SI 2006/211] 

There is no detailed prescribed process for surrendering excess benefits for enhanced protection.

The surrender must take place at any time between 6 April 2006 and the point at which the individual notifies HMRC of their intention to rely on enhanced protection.

The regulations do not prescribe which scheme the surrender should take place under. Rights can be surrendered under any registered pension scheme the individual is a member of; it does not have to be the scheme on which the excess arose. Rights can be surrendered under more than one scheme and do not have to be surrendered at the same time. The rights being surrendered must be uncrystallised rights.

The following surrenders of rights do not count as a surrender of relevant excess:

• a surrender for the purposes of a pension sharing order,
• a surrender to increase prospective rights for a dependant of the member,
• a surrender by means of a transfer of rights to another arrangement,
• a surrender that is an assignment, and
• a surrender of rights held prospectively by the individual as a dependant of a scheme member

The amount surrendered should not be more than the amount of the ‘relevant excess’. That is the amount by which the member’s entitlement on 5 April 2006 exceeded the maximum permitted pension. Any amount surrendered over the relevant excess will be considered under the terms of s172A and may be an unauthorised member payment.

The value of rights surrendered is determined in accordance with s212. RPSM04104670 to RPSM04104720 explain how rights should be valued under s212.

The refund of any ‘surplus’ AVCs to a member will be a surrender of a relevant excess.

The amount surrendered may be paid to a sponsoring employer if the payment meets the requirements of the Registered Pension Schemes (Authorised Surplus Payments) Regulations 2006 - SI 2006/574. The amount surrendered may be used for any purpose permitted under the terms of the scheme. For example a relevant excess could be surrendered to the scheme trustees who could then decide to allocate some of the funds to other scheme members.