RPSM03104610 - Technical Pages: Protecting pension rights from tax charges: Enhanced protection: Relevant benefit accrual: Example 2 of benefits increases that are not relevant benefit accruals

Example 2 of benefit increases after 5 April 2006 that are not relevant benefit accruals: early retirement factor applied

Early reduction factor where the member retires before normal retirement date

Matthew had 30 years’ service on 5 April 2006. The scheme’s accrual rate was 1/60th for each year of service. His final pensionable salary, as defined on that day in the scheme documentation, was £240,000. He therefore registered for enhanced protection.

He remained an active member of the pension scheme for another five years until age 55. His final salary grew to £300,000. The scheme operated a normal retirement age of 60. If the accrued pension had been taken as a deferred pension at age 60 the scheme would have paid £175,000 per annum (35/60 x £300,000). However Matthew wanted an immediate pension. The scheme applied its own early retirement factor of 4% per annum for each year that benefits were taken before age 60. Matthew was therefore paid a pension of £140,000, which has a capital value of £2.8 million (£140,000 x 20).

The test for relevant benefit accrual as in example 1 in RPSM03104600 meant that a pension of £153,154 per annum (valued at £3,063,076) could have been paid without causing the loss of enhanced protection. Matthew retains enhanced protection.