The value of MPP for arrangements under statutory schemes which were established before 14 March 1989 is the maximum annual pension that the scheme could pay the individual on 5 April 2006. It should be assumed that
Where a scheme allows a separate lump sum to be exchanged for
pension on a normal retirement basis, i.e. not serious ill-health
or trivial commutation, the lump sum is converted to pension using
the scheme exchange factor.
Example 1
The ABC statutory scheme gives benefits of a pension of 1/80th
and a lump sum of 3/80ths of pensionable salary for each year of
pensionable service. The scheme allows members to exchange their
retirement lump sum for extra pension using a factor of 21:1, i.e.
for every £100 lump sum given up £4.76 of extra pension
is provided.
Katy is a member of the ABC scheme and on 5 April 2006 has
pensionable salary of £100,000 and has 35 years pensionable
service. Her benefits under the scheme are
Pension = 35/80 x £100,000 = £43,750pa
Lump sum = 3 x 35/80 x £100,000 = £131,250.
The pension equivalent of the lump sum using the scheme exchange factor is £6,250 (£131,250/21). So the ‘HMRC limits’ value is
20 x (£43,750 + £6,250) = £1 million
Where a lump sum cannot be exchanged for pension the value of
the separate lump sum is added to the value of 20 times MPP for the
purposes of the ‘HMRC limits’ amount under paragraph
9(3) Schedule 36 FA 2004.
Example 2
As in example 1 but the scheme does not allow the lump sum to be exchanged for extra pension. The value under paragraph 9 Schedule 36 is
(20 x £43,750) + £131,250 = £1,006,250
| Glossary ( RPSM20000000) |
