RPSM11104340 - Technical Pages: Lifetime allowance: Valuing benefits on BCEs: Augmenting a scheme pension - BCE 3: Abatement of public service pensions
Abatement of a scheme pension under a public service pension scheme
| [Paras 9A, 10A(9), 11(8) and 12(4), Sch 32][Para 8(3) to (6), Sch 10, FA 2005] |
Where the rate of scheme pension paid under a public service pension scheme is initially reduced through abatement (because that individual is still in the employment of the relevant public service - see RPSM09101560) the effects of that abatement are ignored. This applies when considering whether any future increase in the annual rate of that scheme pension has gone beyond the threshold annual rate (including where the scheme pension is increased within the first 12 months) or the permitted margin.
The legislation ignores the level of abatement applied at the time the individual first became entitled to the scheme pension when calculating the initial annual rate for ‘XP’ purposes. This ensures that when the pension returns to its full level of entitlement following the end of the abatement period the individual is not penalised unfairly, as the threshold annual rate and the permitted margin measure are applied to the full potential entitlement, not the initially lower abated amount actual paid.
Example
Kevin becomes entitled to a scheme pension of £10,000 per annum under a public service pension scheme. This pension entitlement is increased every year in line with RPI. But Kevin only receives £5,000 per annum to start with due to his continued employment with that public service.
Two years later Kevin leaves employment and his pension is returned to the full entitlement, which is now worth £11,000. There is no BCE as the pension increase was within the threshold annual rate. This is because the calculation to find out if the threshold annual rate had been exceeded is based on higher (unabated) pension of £10,000 when the first RPI increase is given. If the timing of the annual RPI increases meant that another RPI increase had been given before Kevin’s pension is returned to his full (re-valued) entitlement of £11,000, again, the calculation for the threshold annual rate would have been based on the higher (unabated) pension of £10,000 plus the first RPI increase.
As the threshold annual rate has not been exceeded a calculation to determine whether of not the permitted margin has been exceeded, based on the pension since it started, would not have to be undertaken. But if it did, the initial pension being considered would also be the higher (unabated) pension of £10,000.
This applies equally to both scheme pensions that commenced before and on or after 6 April 2006 (so is relevant when considering the threshold annual rate at RPSM11104341 to RPSM11104345 and the permitted margin at RPSM11104360 to RPSM11104390 and RPSM11104400).
| Glossary (RPSM20000000) |
