Valuation of Benefits
In essence, benefits will be valued in the same way they were valued for primary protection at A-day.
As well as basic information (name, date of birth and national insurance number) and confirmation that the member did not hold primary protection or Individual Protection 2014 at 5 April 2016, the scheme member will need to provide HMRC with amounts A to D and their total relevant amount. The total relevant amount is the sum of amounts A to D (A+B+C+D) below.
Please note pension schemes were only obliged to retain this information until 5 April 2020.
Amount A
The amount of pensions in payment before 6 April 2006, valued at 5 April 2016.
1. Assuming no benefit crystallisation event (BCE) before 6 April 2016
Amount A is 25 x ARP
Where -
ARP* is an amount equal to -
The annual rate at which any relevant existing pension was payable to the individual on 5th April 2016, or
If more than one relevant existing pension was payable to the individual at that time, the sum of the annual rate at which each of the relevant existing pensions was so payable.
* ARP for drawdown, as covered in the Finance (No 2) Bill 2015/16, is 80% of the maximum amount that may be paid in the drawdown pension year. Further details are covered in Finance Act 2004, Schedule 36, Paragraph 20(4).
2. If there has been a BCE between 6 April 2006 and 5 April 2016 it’s slightly different.
Amount A is - 25 x ARP x £1,250,000/SLT
Where -
ARP is an amount equal to -
The annual rate at which any relevant existing pension was payable to the individual at the time immediately before the BCE occurred, or
If more than one relevant existing pension was payable to the individual at that time, the sum of the annual rate at which each of the relevant existing pensions was so payable.
SLT- is an amount equal to what the standard lifetime allowance was at the time the benefit crystallisation event occurred
Amount B
The amount of benefits crystallised between 6 April 2006 and 5 April 2016, valued at 5 April 2016.
Amount B is - Value of benefits crystallised at the time they were tested, adjusted to reflect changes in the standard LTA between that date and 5 April 2016.
This can be found through the formula: Value of prior BCE x (£1,250,000 / LTA at time of prior BCE).
The figure of £1.25m is used as this was the LTA at 5 April 2016.
Amount C
The amount of uncrystallised pension savings in UK registered pension schemes valued at 5 April 2016.
Amount C is -
Money purchase - aggregate of cash value and market value of other assets of the arrangement(s).
Defined Benefit - 20 x pension assuming entitlement to it arose on 5 April 2016 plus the value of any lump sum payable (other than by commutation).
Cash balance arrangement – the amount available on 5th April 2016 for the provision of immediate benefits (assuming you were entitled to receive them on that day).
Amount D
The amount of uncrystallised pension savings in relieved non-UK pension schemes valued at 5 April 2016.
Amount D is determined by -
- To determine amount D
- Identify each relevant non-UK pension scheme of which the individual is a relieved member at the end of 5th April 2016, and
- In relation to each such scheme-
- Assume that a benefit crystallisation event occurs in relation to the individual at the end of 5th April 2016, and
- Determine what the untested portion of the relevant relieved amount would be immediately before the assumed benefit crystallisation event.
- Amount D is the sum of the untested portions determined under sub-paragraph (1)(b)(ii) above.
Scheme members should ensure that these details are included and correct because HMRC will reject applications for protection with incomplete information or if amounts A to D do not add up to the relevant amount provided by the member.