Enhanced Defined Benefit transfer values

 

We have fielded several queries recently in connection with clients wishing to transfer from Defined Benefit (DB) schemes to a SIPP and encountering problems with their Lifetime Allowance (LTA) protection, where they are offered an enchanced transfer value.

The circumstances in which enhanced or fixed protections can be lost are set out in PTM092420 and PTM093400. The manual confirms that where DB rights are transferred to any “other money purchase arrangement” the DB rights must be assessed to see if there has been any benefit accrual since the application for protection. Benefits in place are permitted to have increased, but not by more than the 'appropriate amount'.

'Appropriate amount' is defined as the greater of the: 

  • indexed amount
  • earnings recalculation amount. 

It is therefore important to rely upon the precise wording of the documentation supplying the cash equivalent transfer values (CETV) to ensure that firstly no increase greater than the 'appropriate amount' has occurred and the CETV offered is the 'actuarial equivalent' value of the DB rights being transferred. 

The monetary amount of the transfer is immaterial if the actuarial equivalent statement is present.

However, if the transfer has been calculated by the transferring scheme actuary as a CETV and the value is “enhanced” by the sponsoring employer, perhaps as an added incentive to transfer, the enhancement would be treated as augmenting benefits in a manner greater than the appropriate amount and LTA protection would most probably be lost. The individual would revert to the current LTA.