RPSM13100280 - Technical Pages: International: Enhancement: Non- residence factor: Defined benefits arrangement
How to calculate the non-residence factor for a defined benefits arrangement
| [s223(3) & (4)] [s277] |
For each part of an active membership period (see RPSM13100130) during which the individual is a relevant overseas individual (see RPSM13100140), the defined benefits arrangement non-residence factor is established as follows:
- multiply the individual's pension entitlement under the defined benefits arrangement as at the latest of the following dates by the relevant valuation factor of 20 or a factor greater than 20 as agreed by HMRC (see RPSM11104230):
- the date when the individual became a relevant overseas individual
- the date when benefits first began to accrue to or in respect of the individual under the defined benefits arrangement, and
- 6 April 2006.
Where the registered pension scheme rules provide for a separate lump sum that is not a commutation of pension it is necessary to take that into account as well. That is done by adding to the amount resulting from the above calculation the separate lump sum entitlement that the individual has under the defined benefits arrangement as at the latest date above. This only applies if the lump sum entitlement is not linked to the individual's pension entitlement so that their prospective pension entitlement is not reduced as a result of taking the lump sum.
- multiply the individual's pension entitlement under the defined benefits arrangement as at the earliest of the following dates by the relevant valuation factor of 20 (or a factor greater than 20 as agreed by HMRC):
- immediately before the benefit crystallisation event,
- the date when the individual ceased to be a relevant overseas individual, and
- the date when benefits ceased to accrue to or in respect of the individual under the defined benefits arrangement.
Where the registered pension scheme rules provide for a separate lump sum that is not a commutation of pension it is necessary to take that into account as well. That is done by adding to the amount resulting from the above calculation the separate lump sum entitlement that the individual has under the defined benefits arrangement as at the earliest date above. This only applies if the lump sum entitlement is not linked to the individual's pension entitlement so that their prospective pension entitlement is not reduced as a result of taking the lump sum.
- deduct the result of a from the result of b.
- express the resulting amount as a factor of the standard lifetime allowance as at the date in b.
If there was an earlier part of the active membership period relating to the arrangement during which the individual was a relevant overseas individual the two factors for the two part-periods should be aggregated.
The individual's pension entitlement under the defined benefits
arrangement is the annual rate of pension which would be payable to
or in respect of the individual if they became entitled to payment
of it at the applicable date (as determined under a or b above).
The individual's lump sum entitlement under the defined benefits
arrangement is the amount of lump sum which would be payable to or
in respect of the individual if they became entitled to payment of
it at the applicable date.
Both the pension entitlement and the lump sum entitlement are
established using the
valuation assumptions set out in section 277.
These are as follows:
- the individual concerned has reached any designated age as must have been reached to avoid any reduction in their benefits on account of their age, and
- their benefits should be valued on the basis that they are not physically or mentally impaired.
RPSM13100290 and
RPSM13100300 give some examples.
Exceptionally, the calculation of the opening value at a
above is modified where the individual has also notified HMRC that
they are claiming primary protection under paragraph 7(1)(b) of
schedule 36 (see
RPSM03102010). That is to prevent
the individual qualifying for two lifetime allowance enhancement
factors in respect of the same increase in benefits. Guidance on
how that calculation is modified is provided in
RPSM13100305.
| Glossary ( RPSM20000000) |
