RPSM03110250 - Technical Pages: Protecting
pension rights from tax charges: Retained benefits practice before
6 April 2006: Alternative valuation method
Alternative method for valuing retained benefits after 5 April
2006
16.55a
From 5 April 2006 as an alternative to the valuation guidance
in paragraphs 16.38 to 16.55 retained benefits may be valued as
follows:
For pension rights which have not come into payment on 5th
April 2006;
- if the pension rights are money purchase
rights other than cash balance rights the amount of the annual
pension will be the value of the sums plus the market value of the
assets held on 5 April 2006 to provide the individual’s
benefits where that value is divided either by 20 or by an annuity
rate calculated from the GAD Tables as at 5 April 2006.
Administrators are free to choose which divisor should apply.
Market value should be determined in accordance with section 272 of
Taxation of Chargeable Gains Act 1992.
- if the pension rights are cash balance
rights the amount of the annual pension will be the value of the
capital available at normal retirement date (for the scheme holding
the retained benefit) divided either by 20 or by an annuity rate
calculated from the GAD Tables as at 5 April 2006. Administrators
are free to choose which divisor should apply. The amount of
capital available 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.
- if the pension rights are defined benefits
rights the amount of the annual pension will be the amount of
annual pension available at normal retirement date (for the scheme
holding the retained benefit). The amount of annual pension
available 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.
- if the pension rights are hybrid rights
the amount of the annual pension will be the higher or highest
value for annual pension for the alternate rights available under
the hybrid promise.
- money purchase, cash balance, defined
benefits and hybrid are as defined in section 152 of Finance Act
2004.
For lump sum rights which have not come into payment on 5th
April 2006 where those rights will not be payable as a consequence
of commuting pension rights;
- the amount of the annual pension
attributable to the lump sum rights will be the value of the lump
sum available at normal retirement date (for the scheme holding the
retained benefit) divided either by 20 or by an annuity rate
calculated from the GAD Tables as at 5 April 2006. Administrators
are free to choose which divisor should apply. The amount of lump
sum available 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.
For pension rights already in payment on 5th April 2006;
- the annual amount of pension in payment on
5th April 2006 or the annual amount of the pension when it first
came into payment. Where the pension is being paid under drawdown
or income withdrawal the amount of the pension must be valued as
the maximum amount annual pension that could have be paid on 5
April 2006.
For lump sums paid on or before 5th April 2006;
- the amount of the annual pension
attributable to the lump sums paid will be the amount of the lump
sums paid divided either by 20 or by an annuity rate calculated
from the GAD Tables as at 5 April 2006. Administrators are free to
choose which divisor should apply.
For pre 17 March 1987 members who have lump sum retained
benefits;
- where the lump sum has not come into
payment on 5 April 2006 the value of the retained benefit will be
the value of the lump sum that could be paid immediately on 5 April
2006 on the basis that the member is assumed to be aged 50 if
he/she has not attained that age on that date
- where the lump sum has been paid on or
before 5 April 2006 the value is the amount paid as a lump sum
benefit.
