RPSM11104342 - Technical Pages: Lifetime allowance: Valuing benefits on BCEs: Augmenting a scheme pension - BCE3: The threshold annual rate: The relevant percentage rate
| [s216(1)][Para 10A, Sch 32] |
When the annual rate of a scheme pension being paid to a pensioner member is increased there will not be a lifetime allowance test through BCE 3 if the increase does not exceed the ‘threshold annual rate’. See RPSM11104341 for more details about the threshold annual rate.
One of the tests to decide whether the threshold annual rate has been exceeded is to determine if the increase to a scheme pension in payment has exceeded the ‘relevant percentage rate’.
The relevant percentage rate is 5% unless the scheme administrator has agreed with HMRC the use of a ‘relevant valuation factor’ (RVF) that is greater than 20 for valuing the relevant scheme pensions derived from that scheme for lifetime allowance purposes through BCE 2. Where such a non-standard RVF has been agreed, HMRC will at the same time agree the relevant percentage rate that should be applied here for BCE 3 purposes. Then the relevant percentage rate would be greater than 5%.
Also, a further amount can be added on the increase by reference to the relevant percentage rate to allow for rounding up (see RPSM11104345).
Example
Arnold is receiving a scheme pension of £10,000 per annum on 31st May 2008. On 1st June 2008 he becomes entitled to receive his pension at an increased annual rate of £10,500 per annum. On 1st June 2007 the annual rate of Arnold’s pension was £10,000 per annum. Despite the increase to Arnold’s pension being greater than £250 (see RPSM11104344), the threshold annual rate has not been exceeded as the annual rate of Arnold’s pension on 1st June 2008 has not exceeded 5% (£10,500 - £10,000 = an increase of £500 or 5%) and no BCE 3 test is required in respect of that increase.
On 1st September 2008 the annual rate of Arnold’s pension is increased again from £10,500pa to £10,700pa. On 1st September 2007 his annual rate of pension was £10,000. This level of increase since that date is assumed to have exceeded the level of increase under the relevant indexation increase (see RPSM11104343). The threshold annual rate has been exceeded this time as the increase has exceeded both £250 and 5% (£10,700 - £10,000 = an increase of £700 or 7%) and so the test against the permitted margin (see RPSM11104350) is required to determine whether there will be a BCE 3 in respect of this increase.
For the purpose of this example it is assumed that no rounding up has occurred and no agreement has been given to the use of a RVF of greater than 20.
| Glossary (RPSM20000000) |
