RPSM11104380 - Technical Pages: Lifetime allowance: Valuing benefits on BCEs: Augmenting a scheme pension - BCE 3: Calculation B for pensions first paid after 5 April 2006

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

Calculation B undertaken for BCE 3 occurring before 6^th April 2008

Under calculation B, the starting pension is increased up to the point of the increase to reflect the rise in the RPI over the intervening period. This is the relevant indexation percentage.

As with calculation A, it is unlikely that the timescales involved will be periods of whole years. RPI figures are published on a monthly basis; the relevant table (RP02) can be downloaded from www.statistics.gov.uk/rpi.

All the scheme administrator has to do is compare the indexed value for the month/year in which the scheme pension entitlement arose with the figure for the month/year the increase is being granted to obtain the relevant indexation percentage. The example on RPSM11104390 explains how this works.

The RPI figure must be used for the month the BCE occurs in. This inevitably means that the test will be a retrospective test. However, the scheme administrator will be able to make a fairly accurate estimate of what calculation B will be based on the previous months figures, and so whether or not BCE 3 will be an issue.

The relevant indexation percentage can never be lower than 0%. The percentage should be rounded up to one decimal place (as this is consistent with how the RP02 tables work).

Calculation B undertaken for BCE 3 occurring on or after 6^th April 2008

Under calculation B, the starting pension is increased up to the point of increase to reflect the rise in the RPI over the intervening period. This is the ‘relevant indexation percentage’.

As with calculation A, it is unlikely that the timescales involved will be periods of whole years. RPI figures are published on a monthly basis: the relevant table (RP02) can be downloaded from www.statistics.gov.uk/rpi.

The relevant indexation percentage is the increase in the RPI for the period beginning with the ‘base month’ and ending with the ‘reference month’.

The reference month is any month chosen by the scheme administrator that is within the period of 12 months ending with the month in which the pensioner member became entitled to the scheme pension at the increased rate.

The base month is the month which is the same number of months before the month in which the member first became entitled to the payment of the scheme pension as the reference month is before the month in which the pensioner member became entitled to the scheme pension at the increased rate.

Allowing the scheme administrator to choose the reference month allows for the fact that the latest RPI figures would not be available at the time calculation B is being undertaken in respect of a possible BCE 3. For example, if an increase is to be awarded in June 2008 the RPI figure for that June might not be available. If, instead, the chosen reference month is, say, April 2008 (i.e. 2 months before the month of the increase) that would mean that the base month would have to be the month that is two months before the month in which the member first became entitled to the scheme pension.

The example on RPSM11104395 explains how this works.

The percentage should be rounded up to at least one decimal place (as this is consistent with how the RP02 tables work).

The relevant indexation percentage can never be lower than 0%.

It is not essential for the reference month for the permitted margin check to be the same as the reference month for the threshold annual rate.