What else impacts a member's benefits?
Just as a recap of previous modules, other factors that can affect a member’s benefits on retirement are:
Transfers
Transfers from previous schemes will provide extra benefits either because they have bought additional service, a fixed amount of additional pension or an additional DC investment.
Divorce Debit/Credit
A pension debit reduces the member’s benefit.
A pension credit increases the amount of income a member receives.
An earmarking order may result in some of the benefits being paid to someone else.
Protection
A member may have obtained one of the various forms of protection available from HMRC allowing payment of higher benefits (pension and/or lump sum), than he or she could otherwise have been paid without incurring tax charges.
Maximum benefits
Once the benefits have been calculated they need to be checked against the member’s available LTA and any previous Benefit Crystallisation Events also need to be taken into account. Any benefits paid above the limit will incur a tax charge.
For members of defined benefit schemes, the value is calculated as 20 times the pension.
For members of defined contribution schemes, the fund value at the retirement date is used.
Some schemes still retain the pre-A Day IR limits too and checks will be made against these.
The LTA is currently £1,073,100.
An example of this calculation for someone taking a PCLS of £104,954.79 and a residual pension of £16,217.86 p.a. is:
| PCLS LTA% | (£104,954.79 / £1,073,100 ) x 100 | = | 9.8% |
| RESIDUAL PENSION LTA % | (£16,217.86 X 20 ) / £1,073,100 ) x 100 | = | 30.22% |
| TOTAL LTA % USED | 9.8% + 30.22% | = | 40.02% |
