RPSM11104460 - Technical Pages: Lifetime allowance: Valuing benefits on BCEs: Ill health scheme pension ceases or reduces - BCE 2 and 3

Where a scheme pension paid early on grounds of ill-health ceases or reduces (BCEs 2 and 3)

A scheme pension paid before the normal minimum pension age on grounds of ill-health is tested for lifetime allowance purposes through BCE 2 at the point entitlement arises (using the 20 X ‘P’ calculation – see RPSM11104220). At a later date payment of that scheme pension may be stopped by the scheme because the member’s health recovers.

When the scheme re-commences paying that scheme pension to the member concerned, for example, because normal minimum pension age has been reached, the re-commenced pension is viewed as still representing payment of the original scheme pension. It is not a new pension and is not tested again for lifetime allowance purposes through BCE 2. To do so would effectively be double counting.

Where that pension re-commences any increase in that pension level since the point it was stopped is within the scope of BCE 3. If the rate of scheme pension payable has increased over the intervening period at a greater rate than the permitted margin that excess (XP) would crystallise at that point under BCE 3.

For the avoidance of doubt, there will be no entitlement to a further pension commencement lump sum in these circumstances.

Once re-commenced, any later increase in that scheme pension will also be within the scope of BCE 3.

If the member returns to work and becomes entitled to a further pension benefit in respect of their subsequent service then that entitlement may be treated as a new entitlement in its own right under the scheme. The arising entitlement would then be caught for lifetime allowance purposes through BCE 2 (and, as such, might generate an entitlement to a further pension commencement lump sum).

RPSM11104470 gives an example.

The principles described above will apply also where a scheme pension paid on grounds of ill-health is later paid at a reduced rate rather than stopped completely (see RPSM08100070).