Stand-out Q – pension debit…

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SAT, 24 MAR 2018

Our Technical Hub provides access to a wide range of pension tax and trust technical resources. Every now and then we post tweets covering stand out questions from our technical content and our answers in case others might also find them helpful. As Twitter’s character restrictions only allow for the bare bones of the Q&A we link to the details here, too.

Question

An individual who has scheme specific lump sum protection gets divorced and as part of the settlement there is a pension sharing order. How does the pension debit affect their protected lump sum?

Answer

Unlike a partial transfer which would result in the protected pension commencement lump sum being reduced, this is not the case with a pension debit. Where an individual’s rights under a protected pension scheme are reduced due to the transfer out of a pension debit the individual’s protected lump sum rights remain unchanged. This is because a transfer involves the moving of the responsibility to pay the member the benefits to which they are entitled from their accrued pension rights from one scheme to another. A pension debit is the amount by which the value of the member’s pension rights are reduced with a corresponding pension credit to the ex-spouse’s or former civil partner’s pension rights, which are increased and to which they become entitled. As the member has no right to benefits in relation to a pension credit, the transfer out of a pension debit is not a transfer for pension tax purposes.

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