PTM175400 - Lump sum allowance and lump sum and death benefit allowance: Enhancement factors: Pensions credit factor
As of 6 April 2024 there is no longer lifetime allowance. If you are looking for information about protections, enhancement factors and the lifetime allowance charge please see these pages on The National Archives.
If you are looking for information about the principles of lifetime allowance and benefit crystallisation events please see these pages of The National Archives.
If you are looking for information about enhancement factors pre-April 2024 please seeThe National Archive.The below guidance applies for individuals applying for an enhancement factor from 6 April 2024 to 5 April 2025.
Qualifying for a pension credit factor
Calculating a pension credit factor
Calculating A for the pension credit factor
Notification procedure for the pension credit factor
Qualifying for a pension credit factor
Paragraph 20A Schedule 36 Finance Act
Where pension credit rights were acquired on or after 6 April 2006 but before 6 April 2024, a lump sum death benefit allowance enhancement factor known as the pension credit factor can be given.
To qualify for a pension credit factor the following conditions must be met:
- The pension credit is held in a registered pension scheme and was acquired on or after 6 April 2006 but before 6 April 2024, and
- It’s derived from a pension benefit from the same or another registered pension scheme that was already in payment to the original member at the time of the sharing order, and
- The original member became entitled to that pension in payment on or after 6 April 2006 but before 6 April 2024, and
- A notice of intention to rely on this factor is given to HMRC.
No entitlement to a pension credit factor arises if an individual acquires pension credit rights on or after 6 April 2006 but those rights were derived from:
- the pension of their ex-husband, ex-wife or former civil partner (the original member) that was in payment at the time of the pension sharing order but which came into payment before 6 April 2006, or
- rights held by that ex-husband, ex-wife or former civil partner (the original member) that had not been crystallised at the time of the pension sharing order.
Calculating a pension credit factor
Where an individual (an ex-spouse or former civil partner of a member) acquires pension credit rights derived from a pension already in payment to their ex-husband, ex-wife or former civil partner (the original member), whose entitlement to that pension in payment arose after 5 April 2006 (making it a post-commencement pension in payment) and before the 6 April 2024, that pension will already have been tested against allowances.
The death benefits lump sum allowance of the ex-spouse or former civil partner may be increased by an appropriate allowance enhancement factor to reflect the increased benefits provided by those pension credit rights.
The pension credit factor is calculated by reference to the actual value of the pension credit rights derived from the pension in payment.
The pension credit factor is calculated by using the following formula:
A / SLA
Where A is the appropriate amount the pension credit rights attributable to a post commencement pension in payment represent.
SLA is the standard lifetime allowance for the tax year in which the rights were acquired.
The factor should go to two decimal places. This should be a rounded-up figure, so for example if the calculation produces a factor of 0.231 this becomes 0.24.
This factor is then applied to the individual’s lump sum and death benefit allowance at any future relevant benefit crystallisation event.
Calculating A for the pension credit factor
Where the pension credit rights consist entirely of rights to a post commencement pension in payment, the appropriate amount attributable to those rights is calculated in accordance with section 29(1) of Welfare Reform and Pensions Act 1999 (WRPA 1999, or Article 26(1) of Welfare Reform and Pensions (Northern Ireland) Order 1999 (WRP(NI)O) 1999.)
Where a proportion of the pension credit rights are attributable to a post-commencement pension in payment the appropriate amount will be calculated in one of two ways, either through
- section 29(2) or (3)(b) of WRPA 1999 (or Article 26(2) or (3)(b) of WRP(NI)O 1999), or
- section 29(3)(a) of WRPA 1999 (or Article 26(3)(a) of WRP(NI)O 1999).
The first group of provisions apply where the pension credit right is given as a percentage or a proportion of the donor’s pension rights. In these cases, it will be clear what portion of the credit is attributable to a post-commencement pension in payment, and it will be this portion that is used in A.
The second group of provisions apply where the pension credit right is given as a specified amount, and so it may not be so clear what part of the credit relates to a post-commencement pension in payment. In these circumstances the credit is to be apportioned on a just and reasonable basis, so that the proportion relating to the donor’s post-commencement pensions in payment is used in A.
Notification procedure for the pension credit factor
Paragraph 6 and 12 The Registered Pension Schemes (Enhanced Allowances) Regulations 2006 - SI 2006 131
An individual has to notify HMRC of their entitlement to a pension credit factor. Notification should be made on form APSS 201 and should be received by HMRC no later than 5 years after 31 January following the tax year when the pension sharing order or provision took effect, or the 5 April 2025, whichever is earlier.
So, for example, if an order took effect in the tax year 2015-16 the application should be made by 31 January 2022 at the latest. HMRC may accept late notification in limited circumstances.
HMRC will issue a certificate confirming the pension credit factor the individual is entitled to. HMRC will give each certificate its own reference number. The certificate is valid until such time as it is revoked or amended by HMRC. If after the claim has been made the individual learns that the information provided was incorrect, they must inform HMRC as soon as possible. If necessary, HMRC will then revoke the original certificate and issue an amended certificate, valid as above.