PTM176540 - Lump sum allowance and lump sum and death benefit allowance: Individual protection: Valuing pensions savings for individual protection 2014

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

To apply for individual protection 2014 (IP14), a member must calculate 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).

In order to apply for IP14 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’). The tax legislation does not set out when an adjustment should be made, that is a matter for the scheme administrator and what the scheme rules provide. So, if on 5 April 2014 the member’s rights on that date have been subject to a scheme pays adjustment by the scheme administrator their value will be the value after the adjustment. But if the scheme pays adjustment does not reduce the value of the individual’s rights until on or after 6 April 2014, Amount C will be the value of the unadjusted pension i.e. the value of the uncrystallised rights on 5 April 2016.

If you would like to read in more detail how to obtain a valuation and the four amountsplease see the National Archives.