PSI7.1.16 - Increases of Pensions in Payment:
General - Increase on Whole Pension Before Commutation
-
(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)
Not many schemes give post-retirement increases on the total
pension before commutation. It is generally more favourable to
adopt an enhanced commutation factor (see
PSI8.2.27-36) even though the
increases must then be based on the residual pension. The advantage
of an enhanced commutation factors lies in less pension being given
up in return for the lump sum retirement benefit. These two methods
of giving increases are mutually exclusive and schemes which wish
to do this must use one or the other. It is not acceptable for a
scheme to use a combination of both.
Example Details as at example in
PSI7.1.15but commutation factor, is
11.5:1 (viz an enhanced factor)
£1,565 pension given up at 11.5:1, leaving a residual
pension of £6,435.
A cost of living increase of 5% can be given on the
residual pension only.
£6,435
| |
+322
|
(5%)
|
= £6,757
| |
Contact: | Date issued: | Next review:
