Continuing on with the common queries around the Personal Fund Threshold (PFT), another key issue raised was expressed well in this example:
If a hospital consultant has worked for 20 years as at 7th December 2010 and expects to work for a further 20 years, is the capital value of the pension
a. pensionable salary x (20/80) x 20 or
b. pensionable salary x (40/80) x 20?
This question goes to the heart of the PFT valuation issue. The rules for valuing Defined Benefit (DB) scheme benefits, as outlined by the Revenue Commissioners, are clear that the value is outlined under Option A above.
Some advisors have taken a different view of the legislation. In particular, the assumptions used under Schedule 23B suggest the value should be achieved on the basis of no reduction due to early retirement. This is the basis of the valuation under Option B above.
An alternative view is to value the existing benefit under Option A and to then provide a second valuation for future benefits. As this falls outside the formal valuation methodology suggested by Revenue, it provides more scope for an advisor to look at alternative valuations.
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