As noted in our February update, HM Revenue and Customs (HMRC) has published the last notional earnings cap, which is £123,600 for the year 2010/11. Following 6 April 2006 (A-Day) and the introduction of the new pensions tax regime, the Registered Pension Schemes (Modification of the Rules of Existing Schemes) Regulations 2006 and 2009 (the Modification Regulations) allowed pension schemes whose rules still restricted benefits by reference to the earnings cap to rely upon the notional earnings cap and other limits under the Modification Regulations, prior to making scheme amendments.

The Modification Regulations effectively gave those schemes which automatically became registered pension schemes after A-Day a transitional period of 5 years to make appropriate amendments to their scheme rules. The transitional period ends on the earlier of the first date on or after A-Day when scheme amendments take place, or the end of the tax year 2010/11.

Schemes which rely on the Modification Regulations to limit benefits will need to implement rule amendments in order to avoid the risk that unlimited benefits could be provided unintentionally. Provisions which may need to be amended include the earnings cap within the scheme, age limits on benefits and the definitions of children and dependants.