NIM02770 - Class 1 NICs: Earnings of employees and office holders: retirement benefits schemes from 6th April 2006: employer-financed retirement benefits schemes: payments from such schemes: authorised member payments:
Pension commencement lump sums: amount that can be disregarded
Paragraph 10(4)(b), (5)(b) and (6)(a)(ii) and (b) of Part 6 of Schedule 3 to the Social Security (Contributions) Regulations 2001 (as inserted by regulation 8(6) of the Social Security (Contributions) (Amendment No. 2) Regulations 2006)
Paragraphs 1(2) and 2 of Schedule 29 to Finance Act 2004, as modified by paragraph10(6)(a)(ii) and (b) above
As mentioned in the final bullet in NIM02769, there is a limit on the amount of a pension commencement lump sum (바카라 사이트淧CLS바카라 사이트�) that can be disregarded in the calculation of earnings. That limit is referred to in paragraph 10(6) as 바카라 사이트渢he permitted lump sum바카라 사이트� (바카라 사이트淧LS바카라 사이트�).
The calculation of the PLS is based broadly on that used for calculating the maximum amount of a PCLS that may be paid tax-free - in broad terms, roughly 25% of the value of an individual바카라 사이트檚 pension rights (paragraph 2 of Schedule 29; RPSM09104220).
Where the amount of the PCLS exceeds the amount of the PLS, no amount of it can be disregarded in the calculation of earnings.
The PLS is the higher of:
MVF=4 and LS + (MAP x 20) = 4
where:
MVF is the market value of the employee바카라 사이트檚 employer-financed retirement benefits scheme (바카라 사이트淓FRBS바카라 사이트�) fund at the time the benefit is paid to the employee
LS is the amount of the lump sum
MAP is the maximum annual pension which could be paid to the employee under the arrangement.
Example
The MVF of employee A바카라 사이트檚 EFRBS fund is 拢100,000. The amount of the PCLS is 拢25,000. The MAP is 拢10,000 a year.
The PLS (ie, the amount that can be disregarded in the calculation of earnings) is the higher of:
拢100,000 梅 4 = 拢25,000 and
拢25,000 + (拢10,000 x 20) = 拢225,000 梅 4 = 拢56,250
As the amount of PCLS - 拢25,000 바카라 사이트� is less than the PLS - 拢56,250 바카라 사이트� the whole amount of the PCLS can be disregarded in the calculation of earnings.