RPSM03101600 - Technical Pages: Protecting pension rights from tax charges: Valuing pension rights at 5 April 2006: Uncrystallised retained benefits

Retirement benefits scheme limit (paragraph 9 Schedule 36 FA 2004): valuation of uncrystallised retained benefits

Retained benefits which are uncrystallised pension rights on 5 April 2006

For individuals whose retained benefits must be valued (see RPSM03101590) the value is calculated as follows

• money purchase rights - the value of the sums and the market value of the assets in the fund held to provide the individual’s benefits. The capital value of the fund should be turned into an annual pension amount either by dividing it by 20 or by an annuity rate calculated from the GAD tables on 5 April 2006;
• cash balance rights - the amount of the capital available at the promised date (usually a normal retirement date) which may be reduced to take account of notional immediate payment on 5 April 2006 in accordance with the provisions of the scheme holding the retained benefit. The capital should be turned into an annual pension amount either by dividing it by 20 or by an annuity rate calculated from the GAD tables on 5 April 2006;
• defined benefits rights - the amount of annual pension available at the promised date (usually a normal retirement date) which may be reduced to take account of notional immediate payment on 5 April 2006 in accordance with the provisions of the scheme holding the retained benefit;
• hybrid rights - the higher or highest value for the alternate rights available under the hybrid arrangement.

For any of the rights above, the retained benefit may instead be valued using the method shown in the IR12, “Occupational Pension Scheme Practice Notes” see RPSM03110000 - RPSM03110250. The version used must be the one that was current when the present scheme was approved. The present scheme is the scheme(s) for the subsequent employment, not the scheme holding the retained benefit.

Retained benefits which are uncrystallised lump sum rights on 5 April 2006 (separate lump sum schemes only

This does not apply to schemes that provide lump sums by commutation.

For individuals whose retained benefits must be valued (see RPSM03101590) the value is either

• the amount of the lump sum at the promised date (usually a normal retirement date) which may be reduced to take account of notional immediate payment on 5 April 2006 in accordance with the provisions of the scheme holding the retained benefit, or
• the amount derived by using the valuation method shown in the IR12, “Occupational Pension Scheme Practice Notes” in the version which was current when the present scheme was approved.

Once the amount of the lump sum is known it should be turned into an annual pension amount either by dividing it by 20 or by an annuity rate calculated from the GAD tables on 5 April 2006.