RPSM03301070 - Scheme Administrator Pages: Protecting pension rights from tax charges: Valuing pension rights: Limits on benefits on 5 April 2006

Retirement benefit scheme limit on 5 April 2006 (paragraph 9 Schedule 36 Finance Act 2004)

There are two steps involved in calculating the amount of pension rights that can be protected from occupational pension schemes. The types of pension scheme where this two step calculation needs to be done are;

1. a retirement benefits scheme approved under Chapter 1 Part 14 Income and Corporation Taxes Act (ICTA) 1988
   
   
2. a scheme formerly approved under section 208 ICTA 1970
   
   
3. a relevant statutory scheme (as defined in section 611A ICTA 1988) or a scheme treated by HMRC as if it were a relevant statutory scheme, and
   
   
4. a deferred annuity contract (a section 32 policy) entered into in relation to (a) to (c) above inclusive.

If the figure produced from the step 2 calculation is lower than the step 1 calculation then the step 2 calculation figure must be used.

Step 1

Find the value of the pension rights in accordance with RPSM03301030 to RPSM03301060 depending upon the type of arrangement. Apart from schemes within s611A(1)(a) ICTA 1988 (pre 14 March 1989 statutory schemes) the value of uncrystallised rights in an arrangement or arrangements under a retirement benefits scheme or a deferred annuity contract will be the value of those rights subject to the amount of the pension not exceeding the HMRC limit applying to those pension rights under the scheme or contract. Where the individual has uncrystallised pension rights in than one pension scheme relating to the same employment the rights should be valued separately under each scheme ignoring the value of rights held under other schemes in respect of the same employment.

Step 2

Test the value of the pension rights, as arrived at in step 1, against HMRC limits as they stood on 5 April 2006 in accordance with paragraph 9 Schedule 36 Finance Act 2004. The value of the HMRC limit for these purposes is 20 times the maximum permitted pension (MPP). RPSM03301080 to RPSM03301100 outline how MPP is calculated. More detailed guidance can be found at RPSM03101530 to RPSM03101610.