RPSM03110020 - Technical Pages: Protecting pension rights from tax charges: Retained benefit practice before 6 April 2006: October 1974 pension
IR 12 Practice Notes October 1974 version
Retained benefits
6.26
Benefits accruing at a rate of N/60ths may usually be
provided irrespective of the benefits the employee has earned by
earlier service with other employers (“retained
benefits”). If, however, it is desired to give more than
N/60ths, whether on the “uplifted 60ths” scale or by
reference to any other accrual rate higher thanN/60ths, the
benefits under the present employer’s scheme must be
restricted so that when aggregated with the pension equivalent of
the retained benefits, they will not exceed two-thirds of the
employee’s final remuneration.
Retained benefits include:
- Pensions, whether deferred or already in payment, including any part of a deferred pension which is commutable, but not including any pension from any State scheme,
- the annuity equivalent of lump sums received or receivable, including any already received in commutation of pensions,
- retirement annuities under contracts and trust schemes approved under section 226, Income and Corporation Taxes Act 1970 and
- the annuity equivalent of amounts received by way of refund of contributions and any interest thereon if they were received after the age of 45 and exceeded £2,000.
Benefits at a, b and c may be ignored if their annuity
equivalent does not exceed £52 in all.
6.27
In practice, though they have an enhanced value by reason of
earlier payment, pensions in payment may be taken at their actual
amount and the annuity equivalent of lump sum benefits or refunds
of contributions that have already been paid may be taken as the
amount of the immediate life annuity that could have been bought
with the actual amount of the lump sum at the relevant benefit
commencement date under the current employer’s scheme.
6.28
20% directors (such a director being one who, either alone or
together with his/her spouse and minor children, is or becomes the
beneficial owner of shares which, when added to any shares held by
the trustees of any settlement to which the director or his/her
spouse had transferred assets, carry more than 20% of the voting
rights of the company providing the pension or in a company which
controls that company) and also former controlling directors as
defined in section 224(1), Income and Corporation Taxes Act 1970,
who have paid premiums under retirement annuity contracts during
non-pensionable service and are later given benefits under a new
code scheme may be required to take the benefits under the
retirement annuity contracts into account even though the scheme
benefits do not exceed N/60ths for total service with the company;
all retirement annuities must be taken into account, not merely
those purchased during any period of back service in respect of
which the scheme pension is paid.
