RPSM09101540 - Technical Pages: Member benefits: A secured pension: Scheme pension: Stopping or reducing a scheme pension: Bridging pensions

Where the scheme pension is a bridging pension

Some schemes pay a higher scheme pension before state pension age, and then reduce this at that age by an amount to reflect the state pension that the member receives. This type of pension is known as a bridging pension.

The reduction in the rate of the scheme pension, taking effect at a time not earlier than when the member reaches the age of 60 and not later than when the member reaches the age of 65, must not be greater than the ‘relevant state retirement pension rate’ at that time. If the ‘relevant state retirement pension rate’ is greater than the level of scheme pension being paid, then the scheme pension may stop entirely.

The ‘relevant state retirement pension rate’ at any time is

• where an employment of the member is or has always been contracted-out employment by reference to the pension scheme, 125% of the rate of the basic state pension at that time,
• where an employment of the member has never been contracted-out by reference to the pension scheme, 250% of the rate of the basic state pension at that time,
• where the member has both contracted-in and contracted-out periods of employment by reference to the pension scheme, the rate as calculated by using the ‘prescribed percentage formula’ (see below),

The ‘prescribed percentage formula’

The prescribed percentage is the rate of the basic state pension that is found by using the following formula:

125 + (125 multiplied by A divided by B) where

A is the total number of years of a member's employment to which the pension scheme relates which is not or has not been contracted-out employment, and

B is the total number of years of a member's employment to which the pension scheme relates.

Fractions of a year may be interpolated into this formula provided A and B are treated consistently.

A basic state pension is the basic pension specified in section 44 of the Social Security Contributions and Benefits Act 1992 (or section 44 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992.

Example

Amanda becomes entitled to a scheme pension at age 55.

The whole period of her employment in relation to the scheme providing the pension was contracted-out.

Her scheme pension commences to be paid at the rate of £10,000 per annum (index linked). At age 60 the pension is then worth £11,000 and reduces to reflect that she will become entitled to a state retirement pension. At this time the basic state pension is worth £4,000 per annum. Amanda’s scheme could therefore reduce her scheme pension by up to £5,000 (£4,000 x 125%) when she reaches age 60 with the reduced pension continuing to be index linked as before.