RPSM03302060 - Scheme Administrator Pages: Protecting pension rights from tax charges: Valuing lump sums: Maximum permitted lump sum

How are uncrystallised lump sums valued - the maximum permitted lump sum for retirement benefits schemes and deferred annuity contracts

The principle behind protecting pension rights is that protection is given to the rights an individual had on 5 April 2006. Under the pre 6 April 2006 tax rules benefits from a retirement benefits scheme could not be more than HMRC limits. So it would be inappropriate to allow individuals to protect rights of more than HMRC limits.

Where a lump sum is provided under a retirement benefits scheme or a deferred annuity contract used to secure benefits provided by a retirement benefits scheme the protected lump sum cannot be more than the maximum permitted lump sum.

For each employment there will be a limit on the amount of lump sum that could be paid to an individual. This is the maximum permitted lump sum.

The calculation of the maximum permitted lump sum depends on whether the scheme or contract is

• a statutory scheme set up before 14 March 1989 – see RPSM03302080
• a non statutory scheme, a deferred annuity contract or a statutory scheme set up after 13 March 1989 – see RPSM03302070.