RPSM11104321 - Technical Pages: Lifetime allowance: Valuing benefits on BCEs: Augmenting a scheme pension - BCE3: Anti-avoidance rule for excepted circumstances provisions

When a scheme pension in payment is increased in excepted circumstances there is no lifetime allowance test through BCE 3 (see RPSM11104320).

Basically, the excepted circumstances apply when a registered pension scheme has 50 or more pensioner members and all of the scheme pensions are increased at the same rate and at the same time for a class of pensioner members consisting of at least 20 such members.

The excepted circumstances could be open to manipulation for an individual wanting to avoid a lifetime allowance test under BCE 3 by arranging for that individual to be a pensioner member of more than one class of pensioner members under a particular pension scheme and then receiving increases in respect of each class that, in relation to each class, satisfy the excepted circumstances conditions.

To overcome this possible manipulation there is an anti-avoidance rule, which applies in the following way:

• the rate of an individual pensioner member’s scheme pension is increased in excepted circumstances and so no BCE 3 test is required - the first excepted increase
• before the end of the period of 12 months beginning with the date of the first excepted increase, the annual rate of the individual’s pension is increased again one or more times in excepted circumstances (the subsequent increase or increases) but, each time, under a different class of pensioner membership to which the first excepted increase related (the new class or classes), and
• the purpose, or one of the main purposes, for the individual being included in the new class or classes is to increase the annual rate of the individual’s pension without BCE 3 occurring.

Where these circumstances apply the subsequent increase (or each subsequent increase) is not an increase in excepted circumstances. Thus a test against the threshold annual rate and, if necessary, the permitted margin would be required to determine whether a BCE 3 has occurred in relation to the subsequent increase (or each subsequent increase).