RPSM11104360 - Technical Pages: Lifetime allowance: Valuing benefits on BCEs: Augmenting a scheme pension – BCE 3: Permitted margin for pensions first paid after 5 April 2006

The permitted margin where entitlement to the scheme pension arose on or after 6 April 2006

If the pension entitlement arose on or after 6 April 2006, the permitted margin by which a scheme pension may be increased each year without triggering BCE 3 is calculated by applying the greater of two measures to the annual rate of pension the member first became entitled to.

These are referred to in the legislation as ‘Calculation A’ and ‘Calculation B’.

Calculation A is a set annual percentage referred to in the legislation as the ‘relevant annual percentage’. This is set in the legislation at the rate 5% per annum, but may be different in certain circumstances.

Calculation B is a measure of the retail price index ( RPI) called in the legislation the ‘relevant indexation percentage’. How the relevant indexation percentage is calculated depends on whether the BCE 3 occurs on, or after, 6 April 2008 or before that date.

The permitted margin of increase is calculated by applying the higher of the two measures to the initial rate of scheme pension entitlement - calculation A or calculation B.

Calculation A and calculation B are explained on RPSM11104370  and RPSM11104380 respectively. RPSM11104390  gives an example of how the calculations are worked out.

See RPSM11104340 where a pension paid from a public service pension scheme has been abated.