Pre 1987, 87-89, 97, 2005 and 2016 Old Pension Scheme Rule Options

For company pension schemes such as defined benefit, defined contribution, money purchase, executive pension plan, SSAS and AVCs at retirement you need to think about the following or take professional advice if you had company pension schemes set up before or during certain dates.

There were three regimes depending upon when somebody joined a ‘company’ pension scheme in addition to a 4^th consideration for Contracting Out of SERPS.

• Before 17/3/87
• Between 17/3/87 & 31/5/89 (Existing Scheme) OR a new scheme before 14/3/89
• After 31/5/89 (existing scheme) or a new scheme after 13/3/89
• Contracting Out Pre 1997, 2005 and 2016

Member joined scheme before 17/3/87:

1. There is no limit to the final remuneration used in a pension or tax free cash calculation.
2. A maximum pension of 2/3rd 's final remuneration can be paid after 10 years service using 'uplifted 60ths' rules
3. A maximum tax free cash lump sum can be paid after 20 years service using 'uplifted 80ths' rules.  This is up to 1.5 X Final Remuneration.
4. There are special calculations required when retiring early.

For more on uplifted 60ths and uplifted 80ths see Executive Pension Plan

Member joined an existing pension scheme between 17/3/87 and 31/5/89 OR a new scheme was set up before 14/3/89:

1. There is no limit to the final remuneration used in a pension calculation only.
2. A maximum pension of 2/3rd 's final remuneration can be paid after 20 years service.
3. A maximum tax free cash lump sum can be paid after 20 years service.  This is up to 1.5 X Final Remuneration.  The maximum salary allowed is £100,000.  Therefore, the maximum tax free cash is £150,000.
4. There are special calculations required when retiring early.

Member joined an existing pension scheme after 31/5/89 OR a new scheme was set up after 13/3/89:

1. There is a limit to the final remuneration used in a calculations of THE EARNINGS CAP.   
2. A maximum pension of 2/3rd 's final remuneration can be paid after 20 years service.
3. A maximum tax free cash lump sum can be paid after 20 years service.  This is up to 1.5 X Final Remuneration or 2.25 X the pension.  Subject to the EARNINGS CAP for calculations.
4. There are no special calculations required when retiring early.

The Earnings Caps: 1989/90 - £60,000, 1990/91 - £64,800, 1991/92 - £71,400, 1992/93 - £75,000, 1993/94 - £75,000, 1994/95 - £76,800, 1995/96 - £78,600, 1996/97 - £82,200, 1997/98 - £84,000, 1998/99 - £87,600, 1999/00 - £90,600, 2000/01 - £91,800, 2001/02 - £95,400, 2002/2003 - £97,200, 2003/2004 - £99,000, 2004/2005 - £102,000, 2005/2006 - £105,600.

SERPS and S2P and NEW State Pension - Pre 1997 GMP and Post 1997 Section 9(2B) rights

GMP is a guaranteed minimum pension if you were ‘contracted out’ of SERPS via a defined benefit or ‘underpinned’ company money purchase scheme where the SERPS element is social security contributions that have been re-directed into your own company pension.

- Pre 88 GMP: 6 April 1978 to 5 April 1988 – GMP does not increase in scheme – inflation increases are paid for on top State pension.

- Post 88 GMP: inflation increases up to 3% paid by scheme, excess paid by State pension.

- Post 1997 to 2005 and 2016:

Defined benefit basis of ‘contracting out’ from 6 April 1997 to 5 April 2016 (when SERPS disappeared replaced by new state pension) known as Section 9(2B) rights.

• Section 9(2B) rights available from age 65 but can be paid earlier.
• Benefits provided must be at least the level needed to pass the ‘reference scheme test’
• Tax free cash can be paid from section 9(2B) rights - unlike GMP rights.
• Section 9(2B) pensions normally increase yearly by RPI, capped at either 5% or 2.5% depending on whether they were built up before (5%pa) or from 6 April 2005 (2.5%pa).
• Can be transferred - but any guarantees may be lost depending on the type of scheme they're transferred to.
• Normally provide a 50% pension to a spouse or civil partner on death.

This is an extremely complex area of pensions at retirement and we suggest you take professional financial advice before making any retirement decision.

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