Defined Benefit Pension – 1988 Tax Act Pension Limits

Lawrence631

My pension scheme provides two pensions:

(1) Final salary pension based on years’ service and final salary. With 5 year guarantee and 50% spouse pension, and statutory increases.

(2) AVC pension at 65 (or discounted if taken earlier) based on fixed contributions and age contributions started and finished. With 5 year guarantee but single life only – no 50% spouse pension, and no statutory increases in payment. Note my employer does not contribute to this AVC pension.

My pension benefits are limited to those that would not prejudice the approval of the scheme under the Income and Corporation Taxes Act 1998 Part XIV Chapter 1.

Chapter 1 section 590 effectively provides benefit limits calculated using length of service and final remuneration. I understand how this relates to the final salary portion of my salary, but not the AVC portion. How does the limit apply to the combination of both pensions – it appears like trying to add apples and oranges and coming up with pears?

Chapter 1 Section 590 appears to define the approval limits via the “prescribed conditions”, however Chapter 1 Section 591 appears to suggest that the prescribed condition relating to less than 40 years (my case) does not apply if the “the employer is not a contributor and which provides benefits additional to those provided by a scheme to which he is a contributor.” Can anyone provide guidance if my interpretation of this is correct.

I have the pension scheme PSTR and ECON / SCON reference numbers. Has anyone any experience of asking HMRC for specific details of what was exactly approved under a pension scheme?

QrizB

You've started three threads today - this one, this one and this one.

I'm not sure splitting your query up like this will help you.

Marcon

Lawrence631 said:

My pension scheme provides two pensions:

(1) Final salary pension based on years’ service and final salary. With 5 year guarantee and 50% spouse pension, and statutory increases.

(2) AVC pension at 65 (or discounted if taken earlier) based on fixed contributions and age contributions started and finished. With 5 year guarantee but single life only – no 50% spouse pension, and no statutory increases in payment. Note my employer does not contribute to this AVC pension.

Are you still in employment and contributing to this scheme and the attached AVC?

hyubh

Lawrence631 said:

My pension scheme provides two pensions:

(1) Final salary pension based on years’ service and final salary. With 5 year guarantee and 50% spouse pension, and statutory increases.

(2) AVC pension at 65 (or discounted if taken earlier) based on fixed contributions and age contributions started and finished. With 5 year guarantee but single life only – no 50% spouse pension, and no statutory increases in payment. Note my employer does not contribute to this AVC pension.

The way you describe this 'AVC' is a bit unclear to me. Despite your fruit analogy, it sounds DB ('discounted if taken earlier'), so ultimately the employer is on the hook for it. Although, funnily enough, if it is on the hook for it very directly, paying the additional pension when due rather than out of the main pension fund, then you may well be right that it isn't classed as part of the scheme pension technically.

My pension benefits are limited to those that would not prejudice the approval of the scheme under the Income and Corporation Taxes Act 1998 Part XIV Chapter 1.

Do you mean 1988...? Regardless, this is the scheme in its own rules reflecting the pensions tax regime that existed when they were written. Which is quite different to the current one.

I have the pension scheme PSTR and ECON / SCON reference numbers. Has anyone any experience of asking HMRC for specific details of what was exactly approved under a pension scheme?

Unfortunately, I doubt you're going to get any joy asking HMRC to help you interpret scheme pension rules based on a tax regime that hasn't existed for nearly 20 years (it was swept away by 'A Day' in 2006). If schemes still wish to apply old covering limits themselves, they are free to do so, the interpretation is just down to them.

Marcon

Lawrence631 said:

Thanks, I am no longer contributing to the scheme or AVC. I left the scheme in 2000. The applicable trust deed and rules is dated 1999 and refers to Corporation Taxes Act 1988 Part XIV Chapter 1. Sorry I made a typo in the ICTA date in my original post.

You'll be subject to the rules of the scheme at the time you left service, but they could have been amended since then either by the employer/trustees (changes can't be to the detriment of the position at the time you left), or by over-riding legislation. HMRC will give you a response along such lines if you approach them, or simply refer you to the scheme's administrators.

Could you be a bit more specific about what exactly you are trying to clarify and why, and possibly someone here could set your mind at rest?

hyubh

Lawrence631 said:

Thanks, I am no longer contributing to the scheme or AVC. I left the scheme in 2000. The applicable trust deed and rules is dated 1999 and refers to Corporation Taxes Act 1988 Part XIV Chapter 1. Sorry I made a typo in the ICTA date in my original post.

Doesn't really add anything, but if you'd prefer something more authoritative than random guys on the internet saying scheme rules and practice are the important things here, not the detail of historic tax legislation for itself...

https://www.barnett-waddingham.co.uk/comment-insight/briefings/pensionable-salary-vs-final-pensionable-salary-vs-/

FWIW, the NHS pension scheme's treatment of the old earnings cap in a post-A Day world is detailed here:

https://www.nhsbsa.nhs.uk/sites/default/files/2023-12/Earnings_Cap_1995Section_and_2008_Section_20231221-(V10).pdf

However, that's just one scheme. Yours won't be tied to what the NHS scheme does.

Marcon

hyubh said:

Lawrence631 said:

Thanks, I am no longer contributing to the scheme or AVC. I left the scheme in 2000. The applicable trust deed and rules is dated 1999 and refers to Corporation Taxes Act 1988 Part XIV Chapter 1. Sorry I made a typo in the ICTA date in my original post.

Doesn't really add anything, but if you'd prefer something more authoritative than random guys on the internet saying scheme rules and practice are the important things here, not the detail of historic tax legislation for itself...

https://www.barnett-waddingham.co.uk/comment-insight/briefings/pensionable-salary-vs-final-pensionable-salary-vs-/

FWIW, the NHS pension scheme's treatment of the old earnings cap in a post-A Day world is detailed here:

https://www.nhsbsa.nhs.uk/sites/default/files/2023-12/Earnings_Cap_1995Section_and_2008_Section_20231221-(V10).pdf

However, that's just one scheme. Yours won't be tied to what the NHS scheme does.

As you say, your post doesn't really add anything, except possible confusion! Scheme rules and legislation (rather than 'practice') really are the important things...

hyubh

Marcon said:

hyubh said:

Lawrence631 said:

Thanks, I am no longer contributing to the scheme or AVC. I left the scheme in 2000. The applicable trust deed and rules is dated 1999 and refers to Corporation Taxes Act 1988 Part XIV Chapter 1. Sorry I made a typo in the ICTA date in my original post.

Doesn't really add anything, but if you'd prefer something more authoritative than random guys on the internet saying scheme rules and practice are the important things here, not the detail of historic tax legislation for itself...

https://www.barnett-waddingham.co.uk/comment-insight/briefings/pensionable-salary-vs-final-pensionable-salary-vs-/

FWIW, the NHS pension scheme's treatment of the old earnings cap in a post-A Day world is detailed here:

https://www.nhsbsa.nhs.uk/sites/default/files/2023-12/Earnings_Cap_1995Section_and_2008_Section_20231221-(V10).pdf

However, that's just one scheme. Yours won't be tied to what the NHS scheme does.

As you say, your post doesn't really add anything, except possible confusion! Scheme rules and legislation (rather than 'practice') really are the important things...

Touché - yes 'practice' does matter. Scheme rules are frequently ambiguous, whether only in retrospect or not (hardcoding covering legislation into the scheme rules yet never updating them when that legislation falls away might be considered a prime example of the former). How the scheme has actually been administered therefore has a bearing on how it 'should' be administered.

xylophone

Chapter 1 section 590 effectively provides benefit limits calculated using length of service and final remuneration. I understand how this relates to the final salary portion of my salary, but not the AVC portion. How does the limit apply to the combination ofoth pensions – it appears like trying to add apples and oranges and coming up with pears?

A member of the Scheme could opt to make AVCs of a fixed amount for a fixed period, both these depending on age at scheme entry?

Did these contributions buy extra  (but non-increasing) scheme pension which would  have a  five year guarantee but otherwise be paid only to  up to member's death and so not taken into account in calculation of a widow's pension?

This extra scheme pension would be actuarially reduced if taken before scheme pension age?