RPSM03302070 - Scheme Administrator Pages: Protecting pension rights from tax charges: Valuing lump sums: Maximum permitted lump sum – schemes other than pre 14/3/89 statutory schemes

The maximum permitted lump sum: non statutory schemes, deferred annuity contracts and statutory schemes set up after 13 March 1989

The value of the maximum permitted lump sum for arrangements under a deferred annuity contract or any retirement benefits scheme that is not a pre 14 March 1989 statutory scheme is the maximum lump sum that a scheme approved under Chapter 1 of Part 14 of Income Taxes Act 1988 could pay to an individual in good health on 5 April 2006 without giving HMRC grounds for withdrawing approval.

In arriving at the maximum permitted lump sum you should assume that

• if the individual were in the employment to which the arrangement(s) related on 5 April 2006, the individual is deemed to have left the employment on that date, and
• HMRC would permit immediate payment of lump sum benefits on 5 April 2006 to an individual of whatever age, without affecting the approval of the scheme. Put simply, the fact that the deemed payment of the lump sum would be to an individual aged, say, 45 should not be taken as being an action that would cause HMRC to withdraw approval.

So for a pre-1987 member the N/NS x LS formula or the 3N/80ths formula will apply when calculating the maximum permitted lump sum. Similarly lump sum retained benefits may need to be taken into account for a pre-1987 member – see RPSM03302090.