RPSM03104530 - Technical Pages: Protecting pension rights from tax charges: Enhanced protection: Relevant benefit accrual: Earnings re- calculation
Relevant benefit accrual in defined benefits and cash balance arrangements: the earnings re-calculation value
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| [Paras15(6 - 11), 16 & 17 Sch 36] |
The earnings recalculation value is a calculation of the value of the pension rights as at 5 April 2006 using two assumptions. These are that
- the pension rights under the arrangement are calculated as if the individual’s benefits were payable on 5 April 2006 to the individual as if he were the age he had attained when he first takes benefits under the arrangement or transfers out of the arrangement by means of a ‘permitted transfer’ to an other money purchase arrangement; and
- the amount of the earnings to be used in the calculation of the pension rights is the lesser of
- pensionable earnings immediately before the date of first taking benefits under the arrangement or the date of the ‘permitted transfer’, using the definition of such earnings as applied under the arrangement on 5 April 2006; and
- the ‘post-commencement earnings limit’ as defined in paragraphs 15 and 16 Schedule 36 Finance Act 2004( see RPSM03104540 to RPSM03104560). This limit does not apply to the calculation of pension rights in statutory schemes and the Parliamentary Pension fund as defined in paragraph 1(1) (c) and (e) Schedule 36 Finance Act 2004 respectively.
If the individual has rights in a number of related arrangements the calculation is made when the first benefit crystallisation event or permitted transfer to an other money purchase arrangement occurs in any of the arrangements.
Permitted transfers after 5 April 2006
Where there is a permitted transfer to a
cash balance arrangement or
defined benefits arrangement the earnings
recalculation works by treating the new arrangement as if it were
the same as the old arrangement. Where the transfer is made in
connection with a relevant business transfer - see
RPSM03104091 - there is a change of
employer. In these circumstances the new employment is treated as
if it were the same as the old employment. This enables earnings
with the new employer to count towards the earnings recalculation
test.
RPSM03104531 and
RPSM03104532 give examples of how
the earnings recalculation works.
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| Glossary ( RPSM20000000) |
