On 5 April 2006 not having any benefits in payment John has
uncrystallised rights in a
retirement annuity contract with a value of
£800,000.
John is also an active member of a
retirement benefits scheme of his current
employer. (But for the purposes of this valuation he is deemed to
have left employment and pensionable service.) The scheme holds a
transfer value received from a previous employer’s scheme.
The transfer value is a retained benefit and the lump sum payable
from it is determined by a lump sum certificate. At 5 April 2006
the lump sum payable from the transfer is £60,000. John is a
pre 1987 member, has 20 years’ pensionable service,
pensionable earnings of £120,000, and a normal retirement age
of 60. He is 50 on 5 April 2006.
Step 1: Calculate John’s lump sum rights
under each scheme.
John’s lump sum rights under the retirement annuity
contract are worth £200,000 (25% of the fund value of
£800,000).
John’s lump sum rights under the retirement benefit
scheme are calculated as follows
His lump sum rights from the transferred-in retained benefit are worth £60,000.
His lump sum rights for his current employment under the terms of the scheme rules are the greater of
His lump sum rights are therefore worth £120,000.
The calculations are carried out on the basis that John is aged
60 on 5 April 2006. His pensionable service and pensionable
earnings remain unchanged. The calculations take account of his
lump sum retained benefits and HMRC limits are applied as if John
had reached normal retirement age.
So his total lump sum rights are £380,000 (£200,000
under the retirement annuity contract and £60,000 plus
£120,000 under the retirement benefit scheme).
Step 2: Calculate John’s maximum permitted
lump sum for the benefits from the retirement benefits scheme (the
HMRC limit test). The calculation uses John’s final
remuneration, which is £140,000. This is higher than his
pensionable earnings of £120,000
His lump sum rights from the transferred-in retained benefit are unchanged at £60,000.
His lump sum rights for his current employment are the greater of
His rights are therefore worth £105,000.
The calculation at step 2 uses John’s actual age on 5
April 2006. The value for the lump sum retained benefit is taken as
the amount that could be paid on 5 April 2006. The value of the
lump sum retained benefit could also be calculated using the method
shown in the IR 12, “Occupational Pension Schemes Practice
Notes” see
RPSM03110000 to
RPSM03110250 in the version which
was current when the scheme was approved. For when retained
benefits must be taken into account and when they can be ignored,
seeRPSM03302090.
Step 3: Compare values for lump sum rights in
retirement benefit schemes under Step 1 and Step 2, and adjust as
required.
John's rights under Step1 were £60,000 plus
£120,000, and under Step 2 were £60,000 plus
£105,000. John’s rights must be taken to be the value
under step 2.
Summary: John’s uncrystallised lump sum
rights are worth £365,000 (£200,000 and £60,000 plus
£105,000).
| Glossary ( RPSM20000000) |
