Chapter PTM094310
| Published date | 27 March 2015 |
| Record Number | PTM094310 |
| Court | HM Revenue & Customs |
| Issuer | HM Revenue & Customs |
| Glossary | PTM000001 |
Paragraphs 9(1)(a), (1)(b) and (4) and 10 to 13 Schedule 4 Finance Act 2016
To apply for individual protection 2016 (IP 2016) a member must calculate the value of their pension savings as they stood on 5 April 2016. The way in which pension savings are valued depends on what they consist of. The valuation 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 2016 (along with certain tax-free lump sums received in the same period),
- Amount C - pension savings that the member has not yet taken from their registered pension scheme, and
- Amount D - pension savings that the member has not yet taken from certain overseas pension schemes.
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 or annuity where there has been no BCE
Amount A - valuing a pre-6 April 2006 drawdown pension where there has been no BCE
Amount A - valuing a pre-6 April 2006 pension or annuity 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 2016 BCEs
Overview of valuing uncrystallised rights under registered pension schemes on 5 April 2016 (Amount C)
Amount C - valuing uncrystallised rights under an other money 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 2016
Regulation 14C The Registered Pension Schemes (Provision of Information) Regulations 2006 – SI 2006/567
In order to apply for IP 2016 a valuation will need to be obtained of the value of the member’s pension savings at 5 April 2016. However, HMRC will accept asset valuations already obtained to be treated as the value of the asset on 5 April 2016 where that valuation is at a date from 31 March 2016 to 4 April 2016 and there has been no material change in the assets between that date and 5 April 2016.
A member can ask their pension scheme provider to give them a value for their pension savings on 5 April 2016 or tell them (if they are not already aware of it) what their annual rate of pension was on that date. A scheme administrator must give this information to the member if they receive the member’s request before 6 April 2020 – see PTM164120.
As the pension rights will be valued on 5 April 2016 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. This point is covered at PTM056400. So, if on 5 April 2016 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 2016, Amount C will be the value of the unadjusted pension i.e. the value of the uncrystallised rights on 5 April 2016.
Overview of valuing pre-6 April 2006 pensions in payment (Amount A)Paragraph 10 Schedule 4 Finance Act 2016
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 relevant existing pension may use up lifetime allowance it cannot be subject to the lifetime allowance charge.
So a member receiving a relevant existing pension needs to include the value of this pension in the value of their pension savings as at 5 April 2016 for IP 2016.
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 pensionBroadly, 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 1988 (ICTA) 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.
Paragraph 10 Schedule 4 Finance Act 2016
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 2016.
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 2016, the annual rate at which the pension or annuity is payable is £10,000 then its value for IP 2016 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.
Amount A - valuing a drawdown pension where there has been no BCEParagraph 10(1)(b), 10(6) and 10(7) Schedule 4 Finance Act 2016
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.
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 below.
The value of a drawdown pension is found by the formula:
25 x 80% ARP
The value of ARP will vary depending on the exact form of drawdown pension on 5 April 2016.
Capped drawdownIf on 5 April 2016 the drawdown pension is in capped drawdown (see PTM062520) ARP is the maximum amount of capped drawdown pension the member was able to take for the drawdown year which...
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