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Only pre-1989 DB schemes can crack 1.5m limit

The Inland Revenue has confirmed that only pre-1989 defined-benefit scheme members will be allowed to build up pension pots in excess of the 1.5 lifetime limit without incurring penalties.

Members of both pre-1989 and post-1989 DB schemes, when enhanced protection applies, will not be allowed to accrue further 30ths or 60ths but there is a massive discrepancy between what salary increases the two can use to push up the value of their pensions.

Members of pre-1989 schemes are not subject to the salary cap and will effectively be able to increase by double or more their accrued benefits if their salary should rise strongly before retirement. Although they will not be able to accrue further benefits, the value of the benefits already accrued could be bolstered limitlessly. But members of post-1989 schemes are subject to a 7.5 per cent annual salary increase cap and a 112,500 absolute salary limit.

The Inland Revenue says its principle has always been that those is in enhanced protection cannot accrue further units but, by taking into account salary growth, it evens things out with DC investors who can continue to enjoy investment growth.

Standard Life senior technical manager John Lawson says: “Defined-benefit scheme members cannot accrue further 60ths after A-Day but pre-1989 members, if they triple their salary can triple their pension. For post-1989 members, the most that they can have is subject to the salary cap of 112,500.”

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