RPSM05101030 - Technical Pages: Contributions and tax relief: Member contributions: Overview: Pension credits from non registered pension schemes

Pension credit rights from non registered pension schemes

An individual, within a registered pension scheme, may acquire rights to benefits from a pension credit. This is where rights are derived from a pension sharing order or provision following divorce or dissolution of a civil partnership. Such pension credit rights that come from a pension scheme that is not a registered pension scheme increase a member’s rights under a registered pension scheme. They will not previously have benefited from tax relief and so are treated as a contribution on behalf of the member. The member may claim relief on them up to the annual limit on relief.

Pension credits derived from registered pension schemes are not regarded as relievable pension contributions.

A pension credit means the amount that corresponds to the amount of a pension debit (i.e. the amount by which the value of a person’s shareable rights in a pension arrangement is reduced by a pension sharing order or provision).

Example 

In carrying out a pension sharing order, the administrator of a non registered pension scheme values the member’s shareable rights at £200,000. The pension sharing order specifies an amount of 50% of the value of the member’s benefit rights to be transferred to the ex-spouse. This gives a pension debit of £100,000 in relation to the member’s benefit rights and a corresponding pension credit of £100,000 in respect of the ex-spouse.

The pension credit is transferred to a registered pension scheme to provide pension benefits for the ex-spouse. The amount transferred - £100,000 - constitutes a relievable pension contribution for the tax year in which the pension credit is transferred.

In the same year that the pension credit is transferred the ex-spouse has relevant UK earnings of £50,000 and had paid pension contributions of £5,000 to a registered pension scheme. The ex-spouse can claim tax relief on £45,000 of the pension credit (£50,000 earnings less £5,000 contributions already made).