RPSM11104320 - Technical Pages: Lifetime allowance: Valuing benefits on BCEs: Augmenting a scheme pension – BCE 3: Excepted circumstances

BCE 3: excepted circumstances

A registered pension scheme that overall has 50 or more pensioner members (i.e. persions who are in receipt of pensions directly under the scheme including a schemepension or dependants’ scheme pension) may increase some or all of those scheme pensions being paid to members beyond the threshold annual rate and the permitted margin without triggering a lifetime allowance test through BCE 3.

This is provided

Such a class of pensioner members might include members who are in receipt of a scheme pension and members who are in receipt of a dependants’ scheme pension. The requirement is that all of the scheme pensions (not necessarily the dependants’ scheme pensions) being paid under that class must be increased at that same rate. This means that if there are fewer than 20 pensioner members receiving scheme pensions in that class, because the remainder of the pensioner members in that class are receiving a dependants’ scheme pension, the requirement will still be regarded as being met.

This exemption is there to cover large schemes that might give across the board discretionary augmentation to all their members with pensions in payment or give increases to different groups of pensioner members at different times. In effect this means that if particular pensioner members are awarded increases in circumstances that are outside of this exemption, tests against the threshold annual rate and, if the threshold annual rate is exceeded, the permitted margin to determine if there is a BCE 3 are required to be carried out only in respect of those particular members..

This applies whether the increased rate is given as a fixed percentage or a fixed absolute increase, e.g. everyone gets £500 extra a year. It can also apply to a fixed percentage or a fixed absolute increase on a part of the pension for which an increase is being given.

So it would also cover circumstances where those increases were only applied to a specified portion of pension payments, e.g. to only the excess over GMP.

But any pension increase which is in some way personalised for the individual, for example occurs on a birthday of the member, is unlikely to meet the conditions above unless similar increases are also being applied and at the same time for a sufficient number of people. It is therefore likely to be the case that an increase to a pension resulting from a revaluation of contracting-out rights, such as a ‘step-up’ for GMP, based on the particular circumstances of a single member, will not meet the conditions.

For an increase to be given ‘at the same time’ for all of the members within a particular class of pensioner members means that all of the members in that class get entitlement to the scheme pension at the increased rate with effect from the same date even though the actual payment of the pensions at that increased rate might not start at the same time. For example, there are 20 pensioner members in a particular class and all of them are awarded the same rate of increase on 1st June 2008. Of that class, 15 receive their pensions at the increased rate on 1st June 2008 but the other 5 get their pensions at the increased rate on 1st July 2008 together with an arrears payment to reflect that, for those 5 members, their entitlement to pension at the increased rate actually ran from 1st June 2008.

A “class of pensioner member” can be determined at the time of each increase and can be interpreted flexibly but within its natural meaning. It can include some , or all, pensioner members of the scheme. It need not be confined to a particular category of membership under the scheme rules. It is possible for a member to be in a different class at the time different increases are applied, but this must be subject to the anti-avoidance rule in RPSM11104321.

See RPSM11104321 for details on anti-avoidance measures to prevent manipulation of these excepted circumstances provisions.