RPSM11104345 - Technical Pages: Lifetime allowance: Valuing benefits on BCEs: Augmenting a scheme pension - BCE3: The threshold annual rate: Rounding up
| [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 to RPSM11104344 for more details about the threshold annual rate.
Basically, the threshold annual rate is not exceeded if a scheme pension in payment is increased by no more than the greatest of
- 5% (or such greater percentage if a relevant valuation factor greater than 20 is used) - see RPSM11104342,
- RPI - see RPSM11104343, and
- £250 - see RPSM11104344
provided no other increase has been given in respect of the pension within the last 12 months.
Also, it is possible to give a further increase to allow for the increased rate of pension to be rounded up to the next greatest amount which
- gives an amount in whole pounds (£) when divided by 12 - for scheme pensions paid monthly, or
- gives an amount in whole pounds (£) when divided by 52 - for scheme pensions paid weekly.
Example
Arnold is receiving a scheme pension and is entitled to receive annual increases to it based on the RPI and his pension is increased from £10,000pa to £10,630pa. As Arnold’s pension is paid monthly this would mean that his monthly instalments for the next 12 months would be £885.83 (£10,630/12).
However, instead of receiving the pension at the increased rate of £10,630, Arnold’s pension is actually increased to a rate of £10,632 to allow for Arnold’s monthly instalment of pension to be paid in whole pounds (£) of £886 per month (£10,632/12). As Arnold’s pension has been increased to the next greatest amount from the RPI increase to allow for Arnold’s pension to be paid monthly in whole pound (£) amounts the threshold annual rate has not been exceeded and no lifetime allowance test through BCE 3 is needed.
It should be noted that the increase in RPI gives the greatest amount of increase over 5% (and is assumed to be greater than the percentage if a relevant valuation factor greater than 20 is used) and £250.
| Glossary (RPSM20000000) |
