RPSM11104430 - Technical Pages: Lifetime allowance: Valuing benefits on BCEs: Augmenting a scheme pension - BCE 3: Prevention of overlap under BCE 3 when calculating XP: Further BCE 3 occurs before 10th October 2007
Prevention of overlap under BCE 3 when calculating XP - further BCE 3 occurs before 10th October 2007
| [Para 13(2), Sch 32] |
Once an increase in a scheme pension in payment has triggered a lifetime allowance test through BCE 3 the level of excess pension (XP) that crystallised at that point will be excluded from the calculation of XP at any future event, where that same pension is potentially increased once again beyond the permitted margin at that time.
Where BCE 3 is triggered more than once the notional XP at the latest point is reduced by the XP, or the total of the XP amounts, that crystallised at those earlier events.
How the XP, or the total of the XPs, that crystallised at those earlier events reduces an XP at the later event depends on whether the future BCE 3 occurred on or after 10th October 2007 or before that date.
The following example shows how the amount crystallised at the earlier XP, or the total of the XPs, reduces the XP in respect of a further BCE 3 occurring before 10th October 2007.
Example - where further BCE 3 occurs before 10th October 2007
Raj’s pension is increased in June 2007 from £10,000 to £13,000 per annum through a one-off augmentation funded by his employer.
For the purpose of this example it is assumed that the threshold rate is exceeded.
The permitted margin is £11,800. So the excess (XP) £1,200 and the amount that crystallises through BCE 3 for lifetime allowance purposes is £24,000 (20 x £1,200).
In September 2007 Raj’s pension is once again augmented to £15,000 per annum.
Again, the threshold annual rate is exceeded.
The permitted margin at that point comes to £14,000.
Whilst Raj’s pension has again been raised beyond the permitted margin no amount actually crystallises through BCE 3 at that point.
This is because whilst there is notionally an excess (XP) of £1,000 this figure is discounted by the amount originally crystallised through the earlier BCE 3 in June 2007. As this earlier amount crystallised at the earlier XP (£1,200) exceeds the notional excess here (£1,000) there is no XP, and so no amount crystallises for lifetime allowance purposes.
See RPSM11104435 for details of how the XP is reduced by increasing the XP, or the total of the XP, that crystallised at those earlier events in respect of further BCE 3 occurring on, or after, 10th October 2007.
| Glossary (RPSM20000000) |
