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Pensions Tax Manual

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Protection from the lifetime allowance charge: individual protections 2014 and 2016: valuing pensions savings for individual protection 2014

Glossary PTM000001
   

Paragraphs 1(1)(a) and (b), 1(5) and 2 to 5 Schedule 6 Finance Act 2014

To apply for individual protection 2014 (IP 2014), a member must calculuate the value of their pension savings as they stood 5 April 2014. The way in which pension savings are valued depends on what they consist of. The value of an individual’s pension savings is the total of four amounts (Amounts A to D) as follows:

  • Amount A - any pension that the member started to receive before 6 April 2006 ,
  • Amount B - any pension that came into payment after 5 April 2006 but before 6 April 2014 (along with certain tax-free lump sums received in the same period),
  • Amount C - pension savings that the member had not yet taken from their registered pension scheme, and
  • Amount D - pension savings that the member had not yet taken from certain overseas pension schemes (Amount D).

How to obtain a valuation
Overview of valuing pre-6 April 2006 pensions in payment (Amount A)
Amount A - valuing a pre-6 April 2006 pension scheme or annuity where there has been no BCE
Amount A – valuing a pre-6 April drawdown pension where there has been no BCE
Amount A – valuing a pre-6 April 2006 pension or anuity where there has been a BCE
Amount A - valuing a pre-6 April 2006 drawdown pension where there has been a BCE
Amount B - valuing pre-6 April 2014 BCEs
Overview of valuing uncrystallised rights under registered pension schemes on 5 April 2014 (Amount C)
Amount C - valuing uncrystallised rights under an other money purchase arrangement
Amount C - valuing uncrystallised rights under a cash balance arrangement
Amount C - valuing uncrystallised rights under a defined benefits arrangement
Amount C – valuing uncrystallised rights under a hybrid arrangement
Amount D - valuing uncrystallised rights under relieved non-UK pension schemes on 5 April 2014

How to obtain a valution

In order to apply for IP 2014 a valuation will need to be obtained of the value of the member’s pension savings at 5 April 2014. However, HMRC will accept asset valuations already obtained to be treated as the value of the asset on 5 April 2014 where that valuation is at a date from 31 March 2014 to 4 April 2014 and there has been no material change in the assets between that date and 5 April 2014.

A member can ask their pension scheme provider to give them a value for their pension savings on 5 April 2014 or tell them (if they are not already aware of it) what their annual rate of pension was on that date. A scheme administrator is not obliged to give a member this information but it is unlikely they will refuse to do so.

As the pension rights will be valued on 5 April 2014 this valuation will not be affected if, after this date, the scheme reduces the member’s benefits as a result of an agreement to pay the member’s annual allowance charge (known as ‘scheme pays’) - see PTM056400.

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Overview of valuing pre-6 April 2006 pensions in payment (Amount A) {#}

Paragraph 2 Schedule 6 Finance Act 2014

The value of certain pensions in payment before 6 April 2006 (known as ‘relevant existing pensions’) uses up lifetime allowance if a member has a benefit crystallisation event (BCE) on or after 6 April 2006. However, whilst a relevant exisiting pension may use up lifetime allowance it cannot be subject to the lifetime allowance charge.

So a member receiving a relevant exisiting pension needs to include the value of this pension in the value of their pension savings as at 5 April 2014 for IP 2014.

How a relevant existing pension is valued depends on the form of the pension and whether or not the member has had a BCE since 6 April 2006. Where a member has more than one pension in payment ‘Amount A’ is the total of the values of each pension.

What is a relevant existing pension

Broadly, a relevant existing pension is a pension or annuity which was in payment on 5 April 2006 and derived from UK tax-relieved pension savings. Specifically, a relevant existing pension is any of the following types of pension that was in payment on 5 April 2006 (unless it is being paid to the individual as a dependant following the death of a scheme member):

  • a pension under an approved Chapter I Part 14 Income and Corporation Taxes Act (ICTA) 1988 retirement benefits scheme
  • a pension from a scheme formerly approved under Section 208 ICTA 1970
  • a pension under a relevant statutory scheme (defined in section 611A ICTA 1988) or a scheme treated by HMRC as if it were a relevant statutory scheme
  • an annuity (or income drawdown) under any contract relating to (a) to (c) inclusive (such annuities/pensions include bought-out benefits where the contract is in the member’s name)
  • a pension under the Parliamentary pension schemes or funds
  • an annuity from a retirement annuity contract
  • an annuity from personal pension scheme funds approved under Chapter 4 Part 14 ICTA 1988
  • income withdrawals under a personal pension scheme.

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Amount A - valuing a pension or annuity where there has been no BCE

Paragraph 2 Schedule 6 Finance Act 2014

Subject to the special rule for drawdown pensions set out in the next section, the pension or annuity is valued by multiplying by 25 the annual rate at which it was payable on 5 April 2014.

Note that it is the annual rate that counts and not the actual amount of pension that was paid in the previous 12 months. So if, on 5 April 2014, the annual rate at which the pension or annuity is payable is £10,000 then its value for IP 2014 is £250,000 (£10,000 x 25).

If the member had more than one pension in payment on 5 April 2006, Amount A includes the total of the values of each pension calculated as above.

The value of the lump sum does not have to be taken into account as allowance is made for it in the multiplier used to value the pension.

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Amount A - valuing a drawdown pension where there has been no BCE

Paragraph 2(1)(b), 2(6) and 2(7) Schedule 6 Finance Act 2014

Paragraph 20(4) Schedule 36 Finance Act 2004

Before 6 April 2006 a ‘drawdown pension’ would have been called either:

  • income drawdown if being paid from a retirement benefits scheme or a deferred annuity contract (section 32 policy), or
  • income withdrawal if being paid from a personal pension scheme.

Capped drawdown {.filledcircle}

If on 5 April 2014 the member’s drawdown pension was in capped drawdown (see PTM062520) - to value a drawdown pension for IP 2014, multiply by 25 the maximum amount of drawdown pension a member is able to take for their drawdown year which includes 5 April 2014.

Flexible drawdown

If on 5 April 2014 the member’s drawdown pension was in flexible drawdown (see PTM062580) to find the value for IP 2014 multiply by 25 the maximum annual amount of capped drawdown pension that would have been payable in the drawdown pension year in which the flexible drawdown declaration was accepted by the scheme administrator, had that declaration not been made.

Where a member has more than one drawdown pension in payment on 5 April 2006, Amount A includes the total of the values of each drawdown pension calculated as above.

Note that, in all cases, the maximum amount is not the amount the member is actually taking each year.  So, for avoidance of doubt, a drawdown pension fund does not have to be reviewed to facilitate the valuation

Example

Alan, who is aged 68, is receiving a drawdown pension, having entered income withdrawal on 15 January 2006. Alan’s most recent review took place on 14 January 2013 when his maximum drawdown pension was calculated as being £30,000 per annum and this applies for his next 3 drawdown pension years. On 5 April 2014, the maximum drawdown pension Alan can take is therefore £30,000 although he is only taking £20,000 per year. The value of Alan’s drawdown pension for IP 2014 is £750,000 (£30,000 x 25) and not £500,000 (£20,000 x 25). Alan should include £750,000 in respect of this pension in his IP 2014 relevant amount.

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Amount A - valuing a pre-6 April 2006 pension or annuity where there has been a BCE

Paragraph 2(1)(a) and 2(2) to (5) Schedule 6 Finance Act 2014

Paragraph 20(4) Schedule 36 Finance Act 2004

When a member with a pre-6 April 2006 pension in payment has their first BCE the pension tax rules say that there is a deemed BCE in relation to any pre-6 April 2006 pension or annuity. This deemed BCE occurs immediately before the first actual BCE. The amount of lifetime allowance used up by any pre-6 April 2006 pension/annuity was calculated using the formula 25 x ARP

where ARP is the annual rate of pension at the time the first actual BCE .
Note that it is the annual rate that not the amount of pension or annuity paid in the previous 12 months.

For IP 2014 purposes this same value is used as the starting point, but it is then revalued using the formula (25 x ARP) x (£1,500,000 / SLT) where
SLT is an amount equal to what the standard lifetime allowance was at the time the BCE occurred.
ARP is the annual rate of the pension payable at the time the first actual BCE occurred.

If a member had more than one BCE since 5 April 2006 then the first BCE is always used  for the purposes of the revaluation.

The formula is designed to take account of any change in the standard lifetime allowance since the BCE.

The deemed BCE in respect of the pre 6 April 2006 pension is not an actual BCE so the scheme administrator of the scheme under which the actual BCE occurred should not have included the deemed crystallised amount (25 x ARP) in the lifetime allowance statement provided to the member.  However, the scheme administrator may have informed the member of the amount of lifetime allowance used up by the deemed BCE at the time of the first BCE.  Alternatively the member can ask the scheme administrator for the value of the deemed BCE to be used for the purpose of arriving at Amount A using the above equation.

Example

Barbara’s first BCE occurred on 30 June 2009 when the annual rate at which her pre-6 April 2006 pension was payable was £10,000. Its value for lifetime allowance purposes would have been £250,000 (£10,000 x 25).

For IP 2014 purposes this same value is used as a starting point, but it is revalued using the formula

£250,000 x (£1,500,000 / SLT)

SLT is an amount equal to what the standard lifetime allowance was at the time the BCE occurred.

The formula is designed to take account of any change in the standard lifetime allowance since the BCE.

Barbara’s first BCE was in tax year 2009-10. The standard lifetime allowance for that year was £1,750,000 (see PTM081000). So the value of her pension or annuity for IP 2014 is

£250,000 x (£1,500,000 / £1,750,000) = £214,286

(HMRC will accept rounding up to the nearest pound for administrative convenience)

Amount A -valuing a pre-6 April 2006 drawdown pension where there has been a BCE

For IP 2014 purposes, drawdown pensions that started before 6 April 2006 are valued  using the formula

(25 x ARP) x (£1,500,000 / SLT)

SLT is an amount equal to what the standard lifetime allowance was at the time the BCE occurred.

ARP is the maximum amount of drawdown pension payable in the drawdown pension year in which the BCE occurred but how ARP is calculated depends on when the BCE took place and the form of drawdown pension at the point of that BCE as follows:

BCEs before 6 April 2011

For all forms of drawdown pension ARP is the maximum annual amount that could have been paid as either unsecured pension or alternatively secured pension in the pension year that contains the date of the first BCE.

Capped drawdown 6 April 2011 to 5 April 2014

ARP is the maximum amount that could have been paid in the pension year that contains the date of the first BCE.

Flexible drawdown 6 April 2011 to 5 April 2014

ARP is the maximum annual amount that could have been paid as capped drawdown immediately before  the BCE had a  flexible drawdown declaration not been made.

If the member has had more than one BCE before 6 April 2014, then always use the date of the first BCE for the purposes of the revaluation.

Example

Chris is receiving a drawdown pension, having started income withdrawal in January 2006. His first BCE occurred on 30 June 2009 and for the drawdown pension year in which that date fell, the maximum drawdown pension he could have taken was £30,000 although he only took £20,000. The value of his drawdown pension was £750,000 (£30,000 x 25) and not £500,000 (£20,000 x 25).

For IP 2014 purposes this same value is used as a starting point, but it is revalued using the formula

£750,000 x (£1,500,000 / SLT)

SLT is an amount equal to what the standard lifetime allowance was at the time the BCE occurred.

The formula is designed to take account of any change in the standard lifetime allowance since the BCE.

Chris’s first BCE was in tax year 2009-10. The standard lifetime allowance for that year was £1,750,000. So the value of his drawdown pension  for IP 2014 is

£750,000 x (£1,500,000/£1,750,000) = £642,858

(HMRC will accept rounding up to the nearest pound for administrative convenience).

Amount B - valuing pre-6 April 2014 BCE

Paragraph 3 Schedule 6 Finance Act 2014

Section 216 Finance Act 2006

Benefits are tested against the lifetime allowance whenever a benefit crystallisation event (BCE) occurs. BCEs can occur under a registered pension and, in certain circumstances, non-UK pension schemes (see PTM113410).

How the amount of lifetime allowance that was used up is calculated will depend on the type of benefits that the member has taken. Guidance on when a BCE occurs and how to calculate the value of a BCE starts at PTM088000. For BCEs under a non-UK scheme see also the guidance starting at PTM113410.

It will be necessary to identify the amount of lifetime allowance used up by each BCE and then revalue it to give a value as at 5 April 2014.  This is done by multiplying the amount of the BCE by using the formula (£1.5 million/standard lifetime allowance) at the date of the BCE.

Note that for individuals with fixed protection the standard lifetime allowance is £1.8 million where the normal standard lifetime allowance is below this amount.

Where a BCE has occurred under a registered pension scheme, the scheme administrator should have given the member a BCE statement (see PTM164400) showing the percentage of the lifetime allowance used up by their BCE(s). Where the BCE occurred after 6 April 2012 for a member with fixed protection, the BCE statement will based on a percentage of £1.8 million rather than the standard lifetime allowance.Where they have had more than one BCE, it is the total of the revalued amounts calculated as above that is amount B.

Example  – no fixed protection

In this example it is assumed that the individual does not know the actual value of the amount(s) crystallised and is using their BCE statement percentage to calculate it. If the actual amount is known, or can be obtained from the scheme administrator, then this should be used instead where it provides a higher value because the LTA percentage was rounded down to two decimal places.

Holly has three personal pensions. On 5 July 2008, Holly who is then aged 56 takes a pension commencement lump sum of £100,000 (BCE 6) and purchases an annuity for £300,000 (BCE 4) from one of her personal pension schemes. At that time Holly has no form of protection and has not previously taken any pension benefits. Her BCEs use up £400,000 of her lifetime allowance. In tax year 2008-09 the lifetime allowance is £1,650,000. So her BCEs use up 24.24 per cent (rounded down) and her scheme administrator is required to give Holly a statement showing this percentage. The scheme administrator will provide a statement annually until Holly reaches age 75 (in 2027).
 

On 2 August 2011, Holly takes a pension commencement lump sum of £150,000 (BCE 6) from another of her personal pension schemes and designates £450,000 as being available for the provision of drawdown pension. Her BCEs use up £600,000 of her lifetime allowance. In tax year 2011-12 the lifetime allowance is £1,800,000. So these BCEs use up 33.33 per cent (rounded down) and her scheme administrator is again required to give Holly an annual statement showing this percentage. Holly now has 2 certificates showing that in total she has used up 57.57 per cent of her lifetime allowance.

On 5 April 2014, Holly has uncrystallised rights valued at £700,000. She decides to apply for IP 2014. She knows from her BCE statements that in 2008-09 she crystallised 24.24 per cent of £1,650,000 and in 2011-12 33.33 per cent of £1,800,000. This converts into amounts of £399,960 and £599,940 (the rounding down accounts for these figures being less than the original value of the benefits).

The revalued amounts are:

£363,600 (£399,960 x 1,500,000/1,650,000), and

£499,950 (£599,940 x 1,500,000/1,800,000)

Holly’s total pension savings on 5 April 2014 are therefore

£363,600 + £499,950 + £700,000 = £1,563,550.

This is more than £1.5 million, so her personalised lifetime allowance for IP 2014 is £1,500,000. As she has already used up 57.57 per cent of her lifetime allowance, Holly has 42.43 per cent of £1.5 million available to her before exceeding her lifetime allowance. This means she can take £636,450 in further benefits before having to pay the lifetime allowance charge.

Example  – with fixed protection

In this example it is assumed that the individual does not know the actual value of the amount(s) crystallised and is using their BCE statement percentage to calculate it. Where the benefits are taken whilst the individual has fixed protection the BCE statement should be based on the higher £1.8 million standard lifetime allowance given by the protection.

However, if they know the actual amount(s) crystallised is known or this information can be obtained from the scheme administrator of the scheme(s) from which they have taken benefits, they should be use this amount instead where it provides a higher value than obtained by converting the lifetime allowance statement percentage because the lifetime allowance was rounded down to two decimal places.

Samina has three personal pensions. On 5 July 2008, Samina was aged 55 and took a pension commencement lump sum (PCLS) of £100,000 (BCE 3) and purchased an annuity for £300,000 (BCE 4) from one of her personal pension schemes. At that time, Samina had no form of protection and had not previously taken any pension benefits. Samina’s BCEs used up £400,000 of her lifetime allowance. In tax year 2008-09 the lifetime allowance was £1,650,000. So her BCEs used up 24.24 per cent of the standard lifetime allowance (rounded down). The scheme administrator will provide a statement showing this percentage annually until Samina reaches age 75 (in 2028).

Samina applied for fixed protection so has a lifetime allowance of £1.8 million from 6 April 2012. On 9 September 2012, Samina took a PCLS of £150,000 (BCE 6) from another of her personal pension schemes and designated £450,000 as being available for the provision of drawdown pension. Her BCEs used up £600,000 of her lifetime allowance. In tax year 2012-13 the standard lifetime allowance was £1,500,000. But Samina has fixed protection so the percentage to be shown on her lifetime allowance statement is a percentage of £1,800,000 and not of the £1,500,000 standard lifetime allowance. So her BCEs use up 33.33 per cent (rounded down) and her scheme administrator gives her an annual statement showing this percentage. Samina now has 2 certificates showing that in total she has used up 57.57 per cent of her lifetime allowance.

On 25 March 2013, Samina loses her fixed protection. Samina has uncrystallised rights valued at £700,000 on 5 April 2014. She decides to apply for IP 2014. She knows from her BCE statements that in 2008-09 she crystallised 24.24 per cent of £1,650,000 and in 2012-2013 33.33 per cent of her £1,800,000 fixed protection lifetime allowance. This translates into amounts of £399,960 and £599,940 (the rounding down accounts for these figures being less than the original value of the benefits).

The revalued amounts are:

£363,600 (£399,960 x 1,500,000/1,650,000), and

£499,950 (£599,940 x 1,500,000/1,800,000 (this being Samina’s fixed protection  lifetime allowance at the time of the BCE)

Samina’s total pension savings on 5 April 2014 are therefore £363,600 + £499,950 + £700,000 = £1,563,550

As this is more than £1.5 million, Samina’s personalised LTA for IP 2014 is £1,500,000. As she has already used up 57.57 per cent of her lifetime allowance she still has 42.43 per cent of £1.5 million available to her before exceeding her lifetime allowance. This means she can take £636,450 in further benefits before having to pay the lifetime allowance charge.

Overview of valuing uncrystallised rights under registered pension schemes on 5 April 2014 (Amount C)

Paragraph 4 Schedule 6 Finance Act 2014

Section 212 Finance Act 2004

Pension benefits from savings in a registered pension scheme that have not yet been taken are referred to as ‘uncrystallised rights’ in the pensions tax legislation.

For IP 2014 purposes, these rights are valued in the same way as for other purposes of the pension tax rules. The valuation method to be used differs depending on the type of arrangement that the member’s pension savings are in.

The member’s savings in a registered pension scheme could be in any - or all - of the following types of arrangement:

  • other money purchase arrangements (that is money purchase arrangements that are not cash balance arrangements)
  • cash balance arrangements
  • defined benefits arrangements, and
  • hybrid arrangements.

See PTM023000 for more details on the types of arrangements.

Where the member has more than one set of uncrystallised rights, Amount C is the total value of all the member’s uncrystallised rights held under registered pension schemes.

Amount C -valuing uncrystallised rights under an other money purchase arrangement

Section 212(5) Finance Act 2004

The value of uncrystallised rights on 5 April 2014 will be the aggregate on that day of the value of any cash held under the arrangement and the market value of the other assets such as property and shares held by the arrangement. Any loans or other indebtedness should be included in the calculation.

Example

On 5 April 2014, Fred has an arrangement in a self-invested personal pension scheme (SIPP). On that day the arrangement has £350,000 in cash at the bank and holds quoted shares worth £500,000 and a commercial property for which a valuation of £800,000 as at 5 April 2014 has been obtained. The scheme borrowed £400,000 to fund the purchase of the commercial property and the amount still owing on the loan on 5 April 2014 is £150,000. The value of Fred’s SIPP for IP 2014 is therefore £1.5 million (£1.65 million cash and assets - £150,000 outstanding on the loan).

Valuing an insurance policy which is included in a member’s pension savings

The Association of British Insurers (ABI) and HMRC have agreed a protocol for the valuation of insurance policies (including with-profits policies) as at 5 April 2014. This is not a detailed prescriptive method of valuing policies, rather it is a broad framework. Insurance policies should be valued in accordance with the ABI protocol.

Any questions about valuing insurance policies as at 5 April 2014,  should be raised with the insurer providing the policy.

Amount C - valuing uncrystallised rights under a cash balance arrangement

Sections 212(4) and 277 Finance Act 2004

The value of uncrystallised rights on 5 April 2014 is the amount that would be available for the provision of immediate benefits if the member had been entitled to receive them on that day but subject to two valuation assumptions.

The two valuation assumptions are that:

  • the benefit should be calculated assuming, if the member has not already done so, that they have reached the age at which no reduction would apply under the scheme’s rules to the payment of an immediate benefit, and
  • they are deemed to be in good physical and mental health on 5 April 2014.

Example

Joan has pension savings in a cash balance arrangement. Under her pension scheme rules, Joan is promised a pension pot equal to £20,000 for each year of service. On 5 April 2014, Joan, who is 54, has completed exactly 20 years of service. For IP 2014 purposes, the value of Joan’s pension pot is £400,000 regardless of how much money is actually in her pot on 5 April 2014.

Amount C -valuing uncrystallised rights under a defined benefits arrangement

Sections 212(6) and 277 Finance Act 2004

The value of uncrystallised rights on 5 April 2014 will be the total of:

  • 20 x the member’s gross annual pension built up to date, ignoring any potential commutation of part of the pension for a tax-free lump sum (known as a pension commencement lump sum), and
  • If the scheme provides a PCLS as a separate lump sum, the value of any separate lump sum built up to date. For example if the member is in a pension scheme that provides a pension of 1/80th final salary and a separate lump sum of 3/80ths final salary for each year of pensionable service.

The annual pension and separate lump sum to be valued are those which would be paid if they were taken on 5 April 2014 but subject to two valuation assumptions.

The two valuation assumptions are that:

  • the benefit should be calculated assuming, if the member has not already done so, that they have reached the age at which no reduction would apply under the scheme’s rules to the payment of an immediate benefit, and
  • they are deemed to be in good physical and mental health on 5 April 2014.

Example where PCLS is by commutation

Raj is a member of a defined benefits scheme with an accrual rate of 1/40th of pensionable earnings for each year in the scheme.

On 5 April 2014 Raj is aged 50, is still in pensionable service, has pensionable earnings of £90,000 and has completed exactly 20 years pensionable service. His normal retirement age under the scheme is 60. Under the scheme’s rules, when a pension is taken before age 60, the pension is reduced by 5 per cent for each year the member is below that age. So if Raj actually took his pension on 5 April 2014 it would be reduced by 50 per cent.

For the purposes of the IP 2014 valuation however Raj is assumed to be 60 and so his promised pension is £45,000 (20/40 x £90,000) with a value for IP 2014 of £900,000 (20 x £45,000).

Example where a scheme provides a separate PCLS (i.e. not by commutation)

Sue is a member of a defined benefits scheme providing a pension with an accrual rate of 1/80th and a lump sum of 3/80ths of pensionable earnings for each year in the scheme.

On 5 April 2014 Sue is aged 53, is still in pensionable service, has pensionable earnings of £80,000 and has completed exactly 30 years pensionable service. Her normal retirement age under the scheme is 60. Under the scheme’s rules, when a pension is taken before age 60, the pension is reduced by 4 per cent and the lump sum by 2 percent for each year the member is below that age. So if Sue actually took her pension and lump sum on 5 April 2014 they would be reduced by 28 per cent and 14 per cent respectively.

For the purposes of the IP 2014 valuation however Sue is assumed to be 60 and so her promised pension is £30,000 (30/80 x £80,000) with a value for IP 2014 of £600,000 (20 x £30,000) and her promised lump sum is £90,000 (90/80 x £80,000). The aggregate value of her pension rights is £690,000.

Example where scheme has uneven accrual rate and lump sum is by commutation

Harry is a member of a defined benefits scheme with an accrual rate of 1/60th of pensionable earnings for each year in the scheme up to 20 years and 2/60ths of final salary for each year of service from 20 to 30 years.

On 5 April 2014 Harry is aged 61, is still in pensionable service, has pensionable earnings of £120,000 and has completed exactly 26 years pensionable service. His normal retirement age under the scheme is 60. Under the scheme’s rules, when a pension is taken before age 60, the pension is reduced by 4 per cent and the lump sum by 2 per cent for each year the member is below that age. There is no late retirement uplift if benefits are taken after age 60. He has accrued a pension worth 32/60ths because he has 20 years’ service at 1/60th and 6 years at 2/60ths of his pensionable earnings.

For the purposes of the IP 2014 valuation Harry’s actual age (61) is used as this is more than 60. His promised pension is £64,000 (32/60 x £120,000) with a value of £1,280,000 (20 x £64,000).

Amount C - valuing uncrystallised rights under a hybrid arrangement 

Section 212(7) and if appropriate section 277 Finance Act 2004

Uncrystallised pension rights are valued on the basis of whichever rights have the highest or higher value.

For example, a member may have rights in an arrangement to take benefits from their fund on a money purchase basis, or take benefits at say 1/100th of pensionable earnings for each year of service. Their money purchase fund and their defined benefits would both be valued as at 5 April 2014 and the higher value would apply for the purposes of IP 2014.

Amount D - valuing uncrystallised rights under relieved non-UK pension schemes on 5 April 2014

Paragraph 5 Schedule 6 Finance Act 2014

Paragraphs 13 to 18 Schedule 34 Finance Act 2004

Where pension savings under a non-UK pension scheme have benefitted from UK tax relief those pension savings may be liable to the lifetime allowance provisions. It follows that these benefits should be included in the valuation of pension savings for IP 2014.

Pension savings under a non-UK pension scheme should only be included in an IP 2014 valuation if:

  • the scheme is a ‘relieved non-UK pension scheme’, and
  • the member is a ‘relieved member’.

See PTM113410 for guidance on the meaning of these terms.

The lifetime allowance provisions only apply to that part of the member’s savings in the relieved non-UK pension scheme that has benefitted from UK tax relief. This is known as the ‘relevant relieved amount’. At any BCE under a relieved non-UK pension scheme the amount crystallised by the BCE is limited to the ‘untested portion’ of the relevant relieved amount. PTM113420 explains how to calculate the relevant unrelieved amount and the untested portion. But in broad terms the untested portion is that part of the member’s relevant relieved amount that has not been subject to a BCE.

To find Amount D, assume that a BCE  occurs at the end of 5 April 2014 for uncrystallised rights held under a relieved non-UK pension scheme. Amount D is the untested portion for this assumed BCE. Where a person is a member of more than one relieved non-UK pension scheme, Amount D is the total of their untested portions.

Example

On 6 January 2007 Anna became a relieved member of a relieved non-UK pension scheme. That is the only scheme of which she is a member. Anna crystallises £200,000 on 6 July 2012. This is her first BCE from the scheme.

At this point Anna has been a relieved member of the relieved non-UK pension scheme for five and a half years. Her total pension input amounts for the previous six tax years (2006-2007 to 2011-2012) are £500,000 and her pension input amount for the period from 6 April 2012 to 6 July 2012 is £25,000.  Immediately before her BCE Anna’s relevant relieved amount is therefore £525,000 and as this is her first BCE Anna’s untested portion is also £525,000.

Anna needs to value her pension savings for IP 2016. She has had no pension input amounts under the scheme since her BCE in June 2012.  At the end of 5 April 2014 Anna’s relevant relieved amount is £525,000 and her untested portion is £325,000 (£525,000 less the previous £200,000 BCE).

Amount D for Anna is £325,000.