Facts: John has uncrystallised rights in a
retirement annuity contract with a value of £800,000 on 5
April 2006.
He also has uncrystallised rights in a retirement benefit
scheme of his current employer. He remains an active member of this
scheme, but for the purposes of this valuation he is deemed to have
left employment and pensionable service on 5 April 2006. He has
taken no pension or lump sum benefits from any tax privileged
schemes before 6 April 2006. His scheme holds a transfer value
received from a previous employer’s scheme. The transfer
value is a retained benefit and the lump sum payable from it is
determined by a lump sum certificate. At 5 April 2006 the maximum
lump sum payable is £60,000. John has pre 1987 rights in the
scheme, 20 years’ pensionable service, pensionable earnings
of £120,000, a normal retirement age of 60. He is 50 on 5
April 2006.
His rights under the retirement annuity contract are wholly
concurrent with his rights under the occupational scheme of his
current employer. The rights under the retirement annuity contract
are not retained benefits for the purposes of limits on his rights
under the occupational scheme.
Step 1: Calculate John’s lump sum rights
under paragraph 25 Schedule 36 Finance Act 2004.
Total lump sum rights are £380,000 (£200,000 under
the retirement annuity contract and £60,000 plus £120,000
under the retirement benefit scheme). See
RPSM03105110 for details of the
calculation
Step 2: Calculate John’s uncrystallised lump
sum rights under paragraph 26 Schedule 36 Finance Act 2004 (the
HMRC limit test). The calculation uses John’s final
remuneration. John’s final remuneration is £140,000,
which is higher than his pensionable earnings of £120,000
His lump sum rights from the transferred-in retained benefit are unchanged at £60,000.
His lump sum rights for his current employment are the greater of
20/30 x (1.5 x £140,000 - £60,000) = £100,000.
His rights are worth £105,000.
The calculation at step 2 uses John’s actual age on 5
April 2006. The value for the lump sum retained benefit is taken as
the amount that could be paid on 5 April 2006. The value of the
lump sum retained benefit could also be calculated using the method
shown in the IR 12, “Occupational Pension Schemes Practice
Notes” see
RPSM03110000 to
RPSM03110250 in the version which
was current when the scheme was approved. For when retained
benefits must be taken into account and when they can be ignored,
see
RPSM03101590.
Step 3: Compare values for lump sum rights in
retirement benefit schemes under Step 1 and Step 2, and adjust as
required.
John's rights under Step1 were £60,000 plus
£120,000, and under Step 2 were £60,000 plus
£105,000. John’s rights must be taken to be the value
under step 2.
Summary: John’s uncrystallised lump sum rights (VULSR) are worth £365,000 (£200,000 and £60,000 plus £105,000).
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| Glossary ( RPSM20000000) |
