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HMRC internal manual

Pensions Tax Manual

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Protection from the lifetime allowance charge: lifetime allowance enhancement factors: The relevant relievable amount for a cash balance arrangement

Glossary PTM000001
   

How to calculate the relevant relievable amount for a cash balance arrangement
Example of how to calculate the relevant relievable amount for a cash balance arrangement

How to calculate the relevant relievable amount for a cash balance arrangement

Section 225(3) - (5) Finance Act 2004

Where the individual’s arrangement under their recognised overseas pension scheme is a cash balance arrangement, the cash balance relevant relievable amount is established as follows:

  1. obtain the value of the individual’s rights in the cash balance arrangement as at the latest of the following dates:
* the date that the individual became someone who is not a relevant overseas individual (see [PTM095310](https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm095310))
* the date that benefits first began to accrue to or in respect of the individual under the cash balance arrangement, and
* 6 April 2006.
  1. obtain the value of the individual’s rights in the cash balance arrangement as at the earliest of the following dates:
* immediately before the transfer was made,
* the date that the individual ceased to be someone who is not a relevant overseas individual, and
* the date that benefits ceased to accrue to or in respect of the individual under the cash balance arrangement.
  1. deduct the result of 1 from the result of 2.
  2. If the individual had not been a relevant overseas individual during another part of the overseas arrangement active membership period (see PTM095410) relating to the same cash balance arrangement then the amount calculated in the same way in respect of that other part-period should be added to the amount at 3.

The individual’s rights under the cash balance arrangement is the amount which would be available to provide benefits to or in respect of the individual if they became entitled to them at the applicable date (as determined under a or b above). The rights are established using the valuation assumptions set out in section 277 Finance Act 2004. They are as follows:

  • the individual concerned has reached any designated age as must have been reached to avoid any reduction in their benefits on account of their age, and
  • their benefits should be valued on the basis that they are not physically or mentally impaired.

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Example of how to calculate the relevant relievable amount for a cash balance arrangement

Joseph transferred £400,000 from his recognised overseas pension scheme that was a cash balance arrangement to a registered pension scheme on 6 June 2007.

Joseph began to accrue benefits under his cash balance arrangement on 6 April 2000. He became resident in the UK on 16 October 2006 so he became someone who is not a relevant overseas individual with effect from 6 April 2006. The value of his rights in his cash balance arrangement as at 6 April 2006 amounted to £250,000.

The value of his rights in his cash balance arrangement immediately before the transfer to his registered pension scheme on 6 June 2007 amounted to £300,000. At that date he was still someone who is not a relevant overseas individual and was still accruing benefits under the cash balance arrangement.

The cash balance relevant relievable amount is therefore £50,000 (£300,000 - £250,000)