RPSM11104330 - Technical Pages: Lifetime allowance: Valuing benefits on BCEs: Augmenting a scheme pension – BCE 3: Why BCE 3 only covers scheme pensions

Why BCE 3 only covers scheme pensions, and pension entitlements that are not covered by BCE 3

BCE 3 is the only BCE that deals with an increase in a pension in payment, and only scheme pensions are covered. This is because increases in other forms of pension provision are dealt with for lifetime allowance purposes at the outset

Increases provided under a lifetime annuity contract are clearly identified and paid for at the point of purchase. They are reflected in the purchase price of the contract, and so reflected in the amount crystallising on the purchase of that contract through BCE 4. Once a lifetime annuity contract has been purchased there can be no future input of new funds to boost benefit provision under that contract, unlike with scheme pensions where the ongoing payment of that pension may be funded direct from the scheme.

The same applies with the payment of unsecured pension. Any increase in maximum pension levels can only be funded and justified based on the existing unsecured pension fund. Any further boost to that fund can only come from the additional fund designation of uncrystallised funds held in the same arrangement, which will be caught through BCE 1.

Pensions that represent unauthorised member payments

Where a scheme pension entitlement arises under a registered pension scheme before the normal minimum pension age and the ill-health condition is not met that pension is not within the definition of a scheme pension. It will be treated (and taxed) as an unauthorised member payment.

Until the pension stops being an unauthorised member payment that pension is not considered for lifetime allowance purposes. This applies equally to increases in that pension during that time (so applies equally to BCE 3 as BCE 2).

Once the member reaches that acceptable age the scheme pension is tested under BCE 2. From then on any increases to that pension are potentially caught by BCE 3.