RPSM11104437 - Technical Pages: Lifetime allowance: Valuing benefits on BCEs: Augmenting a scheme pension - BCE3: Prevention of overlap under BCE3 when calculating XP: Further BCE3 occurs on or after 10 October 2007: Increasing XP by the relevant indexation percentage

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.

Where the further BCE 3 occurs on or after 10^th October 2007, the XP at that further event is reduced by increasing the XP that crystallised at the earlier BCE 3 event, or by increasing each XP (if there was more than one earlier BCE 3 event) by the greater of ‘calculation A’ and ‘calculation B’.

Under calculation B, the XP from the earlier BCE 3 is increased up to the point of the future BCE 3 by the rise in the RPI over the intervening period. This is the ‘relevant indexation percentage’.

As with calculation A, it is unlikely that the timescales involved will be periods of whole years. RPI figures are published on a monthly basis; the relevant table (RP02) can be downloaded from www.statistics.gov.uk/rpi.

The relevant indexation percentage is the increase in the RPI for the period between the ‘base month’ and the ‘reference month’.

The reference month is any month chosen by the scheme administrator that is within the period of 12 months ending with the month in which the pensioner member became entitled to the scheme pension at the further increased rate, which is creating the latest BCE 3.

The base month is the month which is the same number of months before the month in which the pensioner member had the earlier BCE 3 in respect of the same scheme pension as the reference month is before the month in which the pensioner member became entitled to the scheme pension at the further increased rate, which is creating the latest BCE 3.

Allowing the scheme administrator to choose the reference month overcomes any uncertainty arising from the latest RPI figures not being available at the time calculation B is being undertaken in respect of a possible BCE 3. For example, if an increase is awarded in June 2008 the RPI figure for that June might not be available. If, instead, the chosen reference month is, say, April 2008 that would mean that the base month would have to be the month that is two months before the month in which the member had the earlier BCE 3.

The example on RPSM11104438 explains how this works.

The percentage should be rounded up to one decimal place (as this is consistent with how the RP02 tables work).

The relevant indexation percentage can never be lower than 0%.