RPSM11101030 - Technical Pages: Lifetime allowance: Level of lifetime allowance: Lifetime allowance enhancement factor in relation to pension credit rights

The Welfare Reform and Pensions Act 1999 (WRPA) (or Welfare Reform and Pensions (Northern Ireland) Order 1999) includes provisions allowing for an individual’s pension rights to be split or shared with an ex-spouse following their divorce, or a former civil partner following the dissolution of their civil partnership, and introduces the concept of a pension debit and a pension credit.

The pension debit is the amount by which the original member’s pension is reduced following a pension sharing order, and the pension credit is the corresponding amount by which the ex-spouse’s or former civil partner’s pension rights are increased. Section 29 of WRPA determines the value of the pension credit to be transferred to an ex-spouse or former civil partner.

Where pension credit rights are acquired on or after 6 April 2006

Where the ex-spouse or former civil partner has acquired a pension credit which is now held in a registered pension scheme and

• they acquired the pension credit on or after 6 April 2006, and
• it is derived from a pension benefit that was already in payment to the original member at the time of the pension sharing order, and
• the original member became entitled to that pension in payment on or after 6 April 2006 (described as a post-commencement pension in payment),

the lifetime allowance of the ex-spouse or former civil partner may be enhanced to reflect the fact that those pension benefits/rights have already been tested for lifetime allowance purposes when the original member originally drew that pension.

The lifetime allowance enhancement factor is called the pension credit factor. How the pension credit factor is calculated is dealt with in RPSM11101130.

There is no entitlement to a lifetime allowance enhancement factor if pension credit rights are acquired on or after 6 April 2006 from a registered pension scheme at a time when a pension is not in payment - see RPSM11101150.

Where pension credit rights were acquired before 6 April 2006

A lifetime allowance enhancement factor is given where the ex-spouse or former civil partner acquired a pension credit before 6 April 2006. Here the lifetime allowance enhancement factor is called the pre-commencement pension credit factor. The deadline for submitting notification of a pre-commencement pension credit was 5 April 2006.

This enhancement is given to ensure parity of treatment, as under the previous tax regime those pension credits held by the ex-spouse or former civil partner after the pension sharing order was put into effect did not generally count towards HMRC limits.

The calculation of the pre-commencement pension credit factor is explained in RPSM11101160 and in more detail in RPSM03108000..

If an individual is entitled to primary protection they cannot become entitled to a pre-commencement pension credit factor as those pension credit rights are already factored in to the primary protection factor.