RPSM03104520 - Technical Pages: Protecting pension rights from tax charges: Enhanced protection: Relevant benefit accrual: Defined benefits and cash balance arrangements

Relevant benefit accrual in defined benefits and cash balance arrangements

Payments from a cash balance or defined benefits arrangement that are either

• a benefit crystallisation event, or
• a permitted transfer (see RPSM03104090) to an other money purchasearrangement

will trigger a test for relevant benefit accrual. If relevant benefit accrual has occurred enhanced protection will be lost.

Payment of benefits that are not a benefit crystallisation event, for example payment of a dependant’s pension, will not cause loss of enhanced protection. Similarly a permitted transfer to another defined benefits or cash balance arrangement will not cause loss of enhanced protection.

When does relevant benefit accrual occur?

Relevant benefit accrual occurs when the total value of

• the benefit crystallisation events and
• permitted transfers to other money purchase arrangements

paid from cash balance and/or defined benefits arrangements in respect of the same employment, or from arrangements related to the employment (see below), are more than the ‘appropriate limit’.

RPSM03104525 explains what the appropriate limit is.

RPSM03104521 gives more information on the valuation of these payments for the relevant benefit accrual test.

This relevant benefit accrual test is on an employment basis. Usually this means that the value of benefits paid in respect on one employment is compared to the value of the rights as at 5 April 2006 in respect of that same employment (and no other employment).

Some retirement benefits schemes are set up for a number of employers that may or may not be associated. Such schemes may provide benefits that are calculated strictly in respect of each employment held by the individual so that the scheme may provide a number of separate pension entitlements. Alternatively, such schemes may provide benefits for a number of employments held by the individual by calculating total benefits for all the employments by reference to the earnings from the last employment held. Where this is the case, the test for relevant benefit accrual and the value of the appropriate limit will be applied to the benefits paid in respect of all the employments, as if there were a single employment.

Benefits in other money purchase arrangements are not included in this calculation. Neither the benefits paid nor the value of benefits held in these arrangements on 5 April 2006 is included in the relevant benefit accrual test.

RPSM03104522 gives an example of a relevant benefit accrual test where more than 1 employer is involved and there is more than one type of arrangement.

For the avoidance of doubt, a ‘relevant consolidation contribution’ paid to a defined benefits or cash balance arrangement to discharge the liability of an unfunded unapproved retirement benefits scheme in accordance with paragraph 48 Schedule 36 will increase the benefits provided by the arrangement. If when benefits are crystallised they are more than the ‘appropriate limit’ enhanced protection will be lost