RPSM03110050 - Technical Pages: Protecting pension rights from tax charges: Retained benefit practice before 6 April 2006: May 1979 lump sum

IR12 Practice Notes May 1979 version

Retained lump sum benefits

8.7

A lump sum accruing at a rate of 3N/80ths may usually be given irrespective of lump sums the employee has earned during previous occupations (“retained lump sum benefits”). Accrual at a higher rate may be given but is subject to the proviso that the increased lump sum shall not when aggregated with the retained lump sum benefits exceed 120/80ths of final pay.

Retained lump sum benefits include:

1. lump sums received or receivable from any scheme other than one of the State schemes mentioned in paragraph 2.3, including sums received or receivable in commutation of pension,
2. sums received or receivable in commutation of retirement annuities under contracts (approved under section 226, Income and Corporation Taxes Act 1970) related to non-pensionable service with the current or an earlier employer or previous periods of self-employment (either alone or in partnership), but excluding those relating to a concurrent occupation.
3. 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 and b may be ignored if they do not exceed £200 in all.

In practice, though they have an enhanced value by reason of early payment, lump sums already received may be taken at their actual amount.

Deferred lump sums from previous occupations that will not be paid until after the date of retirement from the current employment may be appropriately discounted in valuing them as retained benefits for the purpose of any necessary restrictions of the lump sum payable from the current scheme.

20% directors 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 lump sums from a scheme approved under the Finance Act 1970 will be required to take lump sums under the retirement annuity contracts into account even though the scheme lump sums do not exceed 3N/80ths for total service with the company; lump sums under all retirement annuities and trust schemes (except those relating to a concurrent occupation) must be taken into account not merely those purchased during any period of back service in respect of which the scheme pension is paid.