RPSM03105060 - Technical Pages: Protecting
pension rights from tax charges: Lump sums: Valuing lump sum
rights: What are uncrystallised rights
Valuing lump sum rights: uncrystallised lump sum rights
For the purposes of paragraph 25 of Schedule 36 Finance Act
2004, uncrystallised lump sum rights from ‘relevant pension
arrangements’ are valued on 5 April 2006 as follows:
- for
retirement annuity contracts, 25% of the value of
the cash plus the
market value of the other assets held under the
contract (regardless of whether more or less could have been paid
as a lump sum before 6 April 2006);
- for
personal pension schemes, the value of lump sum
rights that could be paid had the individual become entitled to
payment on 5 April 2006. Lump sum rights must be calculated taking
account of protected rights and any lump sum certificates that
limit the amount of the lump sum payable.
- for
retirement benefit schemes and deferred annuity
contracts (section 32 policies) there is a two stage process
- the value of the rights is determined according to the rules of
the scheme making certain valuation assumptions. The value of the
member’s uncrystallised lump sum rights includes rights to
take a lump sum benefit with the consent of the
trustees/employer/any other party (see
RPSM03105070), and
- an ‘HMRC limits’ test is undertaken to determine
the maximum allowable value for the benefits (see
RPSM03105080).
The lower of these two figures is the value that can be
protected.
