RPSM03110070 - Technical Pages: Protecting pension rights from tax charges: Retained benefit practice before 6 April 2006: October 1989 lump sums

October 1989 version

Retained lump sum benefits

8.7

A lump sum accruing at a rate of 3N/80ths may usually be given irrespective of lump sums the employee has earned during previous occupations (“retained lump sum benefits”). An increase on any of the bases permitted under the preceding paragraph may be given but is subject to the proviso that the increased lump sum shall not when aggregated with retained lump sum benefits, exceed 120/80ths of final pay calculated.

Retained lump sum benefits include:

1. lump sums, including sums in commutation of pension, received or receivable from any approved scheme and from any scheme accepted by the Inland Revenue as corresponding for the purposes of S.596(2)(b) ICTA 1988,
2. sums received or receivable in commutation of retirement annuities under contracts and trust schemes (approved under section 620) or lump sums from personal pension schemes approved under section 631 related to non-pensionable service with the current or an earlier employer, or previous periods of self-employment (either alone or in partnership), but excluding those relating to a concurrent occupation,
3. amounts received by way of refund of contributions and any interest thereon, if they were received after the age of 45 and exceeded £2,000.

Benefits at a. and b. may be ignored if they do not exceed £1,000 in all.

In practice, though they have an enhanced value by reason of early payment, lump sums already received may be taken at their actual amount.

Deferred lump sums from previous occupations that will not be paid until after the date of retirement from the current employment may be appropriately discounted in valuing them as retained benefits for the purpose of any necessary restrictions of the lump sum payable from the current scheme.