IPTM3650 - Chargeable events: personal portfolio bonds: calculation method

Where a policy or contract is a personal portfolio bond (PPB) at the end of the ‘insurance year’, see IPTM3505, there is a PPB gain if the sum of premiums paid and total amount of personal portfolio bond excesses exceeds the total amount of part surrender gains. The PPB gain is equal to 15 per cent of the excess. This calculation is not performed for the ‘final insurance year’, see IPTM3600.

Premiums paid

This is the total amount of premiums paid on the policy or contract since it began up to the end of the ‘insurance year’.

Total amount of personal portfolio bond excesses

The above calculation is performed for each previous ‘insurance year’ successively, starting with inception of the policy or contract, irrespective of whether it was a PPB at the end of the year in question. Total amount of personal portfolio bond excesses is the sum of the gains from those calculations. It is nil if there is no previous ‘insurance year’.

Total amount of part surrender gains

This is the aggregate of previous ‘insurance years’’ gains, which have arisen under the part surrender ‘periodic calculation’ rules, see IPTM3560 and IPTM3565. It is nil if there is no previous ‘insurance year’.

Any year in which the policy or contract is not a personal portfolio bond nevertheless enters into the calculation. So the relevant premiums, previous gains and ‘excess events’ are those of any ‘insurance year’ of the policy or contract, irrespective of whether it had personal portfolio bond status at that time.

Gains that arose on previous part assignments are not brought into the calculation.

In practice

It helps to construct a table for each year as follows. A + B - C is the PPB excess for year y. In year 1, B and C will be nil.