RPSM11104344 - Technical Pages: Lifetime allowance: Valuing benefits on BCEs: Augmenting a scheme pension - BCE3: The threshold annual rate: Increases not exceeding £250
| [[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 or not the threshold annual rate has been exceeded is to determine if the increase to a scheme pension in payment has exceeded £250
The threshold annual rate is not exceeded where, for example, the increase to the scheme pension does not exceed £250.
Also, a further amount can be added on to an increase not exceeding £250 to allow for rounding up (see RPSM11104345).
Example
Arnold is in receipt of a scheme pension of £4,000 per annum on 31st May 2008. On 1st June 2008 Arnold becomes entitled to receive his pension at an increased annual rate of £4,225 per annum. On 1st June 2007 the annual rate of Arnold’s pension was £4,000 per annum.
The increase of £225 means that Arnold’s scheme pension has increased by more than 5% (an increase of 5% being £200) which means that the ‘relevant percentage rate’ part of the threshold annual rate test is exceeded (see RPSM11104342).
For the purpose of this example it has been taken that the biggest increase that could be given by reference to the RPI is £150 which means that the ‘relevant indexation percentage’ part of the threshold annual rate test is exceeded (see RPSM11104343).
However, the threshold annual rate has not been exceeded as the increase to the annual rate of Arnold’s pension on 1st June 2008 has not exceeded £250 (£4,225 - £4,000 = an increase of £225) 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 £4,225 per annum to £4,394 per annum (an increase of £169 or 4%). On 1st September 2007 Arnold’s annual rate of pension was £4,000.
Whilst the increase of £169 on 1st September 2008 represented a 4% increase the ‘relevant percentage rate’ part of the threshold annual rate test is still exceeded as Arnold’s pension has increased by more than 5% when compared to the rate of his pension on 1st September 2007 (£4,394 - £4,000 = £394 or an increase of 9.85%).
Again, for the purpose of this example it has been taken that the ‘relevant indexation percentage’ part of the threshold annual rate test is also exceeded.
Although the increase on 1st September 2008 is £169 the threshold annual rate has been exceeded this time as, along with relevant percentage rate and the relevant indexation percentage, the increase has also exceeded £250 when Arnold’s new rate of pension is compared with the rate on 1st September 2007 (£4,394 - £4,000 = an increase of £394).
A test against the permitted margin (see RPSM11104350) is required to determine whether or not there will be a BCE 3 in respect of this increase.
Also, for the purpose of this example the scheme administrator has not rounded up any of the increases to the scheme pension (see RPSM11104345).
| Glossary (RPSM20000000) |
