RPSM03110040 - Technical Pages: Protecting pension rights from tax charges: Retained benefit practice before 6 April 2006: May 1979 pension
IR 12 Practice Notes May 1979 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
during previous occupations (“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 than N/60ths, the benefits under the present
employer’s scheme(s) 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, and whether from a
United Kingdom or any overseas source, 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 pension,
- retirement annuities under contracts and trust schemes
(approved under section 226, Income and Corporation Taxes Act 1970)
related to non-pensionable service with the current or an earlier
employer, or to previous periods of self-employment (either alone
or in partnership), but excluding those relating to a concurrent
occupation,
- annual payments made to a retired partner and treated as earned
income (“partnership retirement annuities – section 16
Finance Act 1974) and
- the annuity equivalent of amount 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, c and d 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 received may be taken as
the amount of the immediate life annuity that could be bought at
the relevant benefit commencement date under the current employer's
scheme with the actual amount of the lump sum.
Deferred pensions from previous occupations that will not
come into payment until after the date of retirement from the
current employment need not be brought into account as retained
benefits until they begin to be paid. Alternatively, if level
pensions from the current employer's scheme are desired, the
deferred pensions may be notionally reduced in the retained
benefits calculation to their actuarial equivalent if paid at the
earlier date.
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 an
approved 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, except where they relate to a
concurrent occupation
