RPSM09105020 - Technical Pages: Member benefits: Lump sums: Trivial commutation lump sum: Example of valuing benefits in payment on 5 April 2006

If the lump sum was paid on or after 6 April 2011 you should first read RPSM09105085.

An example of valuing benefits that were in payment on 5 April 2006

On 1 January 2011 Catherine is in receipt of an annual pension of £2000 per annum. She started receiving this pension in 2001.

This pension is being valued in relation to a nominated date of 1 January 2011.

The above pension is considered for commutation limit purposes on the basis of its annual rate as at 5 April 2006. At this date the pension was being paid at the rate of £1,500 per annum.

So the crystallised value at that date is £37,500 (£1,500 x 25).

On the nominated date the £37,500 represents £45,000 of pension rights.

This is because the £37,500 is adjusted to reflect the change in the standard lifetime allowance between the 2006/07 and 2010/11 tax years (2010/11 being the tax year the nominated date falls in).

The standard lifetime allowance in 2006/07 is £1.5 million, and in 2010/11 £1.8 million.

So £37,500 x £1.8million/£1.5million = £45,000.