Mike has benefits in 3 money purchase arrangements for his single employment. The total fund value is £645,000 split as follows.
All schemes provide lump sums by commutation. Scheme A provides a lump sum of 3/80ths salary for each year of service. Schemes B and C both potentially provide the maximum permitted lump sum that can be paid under HMRC limits. The lump sum entitlement under the schemes on 5 April 2006 is as follows
Mike can only protect what he is actually entitled to. The funds
in scheme C are less than Mike’s HMRC maximum permitted lump
sum, but as there is only £25,000 actually available to
provide benefits the lump sum entitlement is the fund value of
£25,000.
Mike’s HMRC maximum benefits are a pension of
£100,000 pa and a lump sum of £150,000. The total scheme
funds will not provide excessive pension benefits but the total
lump sum entitlement of £285,000 is £135,000 more than
the HMRC maximum permitted lump sum. The £135,000 excess will
be apportioned across all 3 schemes using the formula
Scheme lump sum – (excess lump sum x scheme lump sum /total lump sums)
Scheme A = £110,000 – (£135,000 x
£110,000/£285,000) = £57,895
Scheme B= £150,000 – (£135,000 x
£150,000/£285,000) = £78,947
Scheme C= £25,000 – (£135,000 x
£25,000/£285,000) = £13,158
This gives LS rights apportioned between the schemes as
follows
Schemes A and C will have protected lump sum rights. As the adjusted lump sum rights under scheme B are now below 25% scheme B will not be protected. The normal lump sum rules under paragraphs 2 and 3 Schedule 29 FA 2004 will apply to scheme B.
| Glossary ( RPSM20000000) |
