RPSM11104341 - Technical Pages: Lifetime allowance: Valuing benefits on BCEs: Augmenting a scheme pension - BCE3: The threshold annual rate

If the rate of a scheme pension in payment to a pensioner member is increased other than in excepted circumstances (see RPSM11104320 for details about the excepted circumstances) the next step to determine whether a lifetime allowance test is needed through BCE 3 is to determine whether the increase exceeds the ‘threshold annual rate’.

To determine the threshold annual rate, first

• take the date on which entitlement to the scheme pension at the increased annual rate arose - the current date
• go back to what was the previous anniversary date 12 months earlier than the current date - the previous date
• determine the annual rate of the scheme pension at the previous date, and
• determine the annual rate of the scheme pension at the current date.

If the difference between the annual rate of the scheme pension at the previous date and the current date does not exceed the greatest of

• the relevant percentage rate (see RPSM11104342),
• the relevant indexation percentage (see RPSM11104343), and
• £250 (or such other amount that may be made by an order of HM Treasury) see RPSM11104344.

the increase at the current date has not exceeded the threshold annual rate and no test is required under BCE 3.

If the date of increase is 29^th February the date of increase must instead be taken as 28^th February for the purpose of comparing with the anniversary date 12 months earlier.

Also, see RPSM11104346 when an increase is awarded to a scheme pension and that pension only came into payment less than 12 months before the date of the increase. For example, an increase is given on 1^st June 2008 to a scheme pension where entitlement started on 2^nd June 2007.

The threshold annual rate test applies equally to both scheme pensions that commenced before, on or after 6 April 2006.