Scheme Maximum

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The Scheme Maximum limits the amount of benefits that can be paid from the Scheme and means that pension cannot exceed more than two thirds of final remuneration which can include other taxable benefits, such as overtime or shift payments and may therefore be greater than  inal Pensionable Salary.

For most members, the Scheme Maximum is a much more generous limit than previously applied under Inland Revenue limits. For example, AVCs are not included as a benefit when calculating the Scheme Maximum but were included in Inland Revenue limits. Also, if greater, 1/60th of final remuneration for each year of Company employment will be used in the calculation for the Scheme Maximum regardless of pension benefits from other pension schemes. 
 
Although the detail of what is included can be complex (and can be found in the Inland Revenue IR12 Practice Notes), the following is a guide.

Items included when calculating the Scheme Maximum:

Scheme pension and Scheme lump sum;
Previous pension and lump sum benefits from any other scheme or personal pension arrangement whether taken already or still to be taken;
Transferred in benefits from previous pension arrangements including transferred in Guaranteed Minimum Pension.

Items ignored when calculating the Scheme Maximum:

AVCs paid during Scheme membership;
Any State pension benefits, including the Basic State Pension, State Earnings Related Pension Scheme, State Second Pension, Graduated Pension and Pension Credit;
Any contributions paid to a personal pension arrangment while an in-service member of the Scheme.

Example

A member has completed ten years Pensionable Service in the Scheme, is earning a basic salary of £22,000 and has other benefits worth £2,000. His Scheme pension is £4,000 a year. AVC contributions he has paid will give him an additional pension of £2,000 a year. He also has a pension from another job he had which is £6,000 a year and a personal pension from before he joined the Company which will give him a pension of £1,500 a year.

 

His Scheme Maximum is 2/3rds of his final remuneration of £24,000, which is £16,000. All his applicable pensions (£4,000 + £6,000 + £1,500) are added together and these equal £11,500 a year. The member is therefore well within the Scheme Maximum and can receive his full benefits from the Scheme.