PSI6.4.33 - Total Benefits on Retirement at Normal Retirement Age: Pensionable Remuneration and Final Remuneration - Adding for cost of living - "Dynamisation"

(This archived guidance relates to HMRC discretionary practice before the 6th April 2006. For current guidance on Registered Pension Schemes see the Registered Pension Schemes Manual)

[PN Glossary]

Final remuneration which is based on a year other than the 12 months before NRD may be increased to reflect changes in the cost of living. This is known as dynamised final remuneration. Each year's remuneration used in the calculation may be increased for the period from the end of the base year up to NRD.

Example 1 Employee retires at NRD (31.12.1993). Final remuneration is based on earnings of £40,000 for the 12 months to 31 December 1990. When dynamised using the Retail Prices Index figures (see Appendix 1 to Part 7) final remuneration can be increased thus:
£40,000 x 141.9/129.9 = £43,695
Example 2 Employee retires at NRD (31.12.1993). Final remuneration is based on an average of the employee's earnings for the years to 31.12.1989, 1990 and 1991. Earnings in each year were £30,000, £33,000 and £37,000 respectively:
£30,000 x 141.9/118.8 = £35,833
£33,000 x 141.9/129.9 = £36,048
£37,000 x 141.9/135.7 = £38,690
TOTAL £110,571
£110,571 ( 3 = £36,857

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