- Annual allowance: pension input amounts: valuation assumptions: entitlement versus discretion
Valuation assumptions and entitlement versus discretion
There is a distinction between a benefit given on a discretionary basis and an entitlement to a benefit. The annual allowance is based on entitlement.
When assessing an ‘entitlement’, it might be claimed that the normal practice of the trustees or other person in exercising a discretionary power ought to be taken into account and factored into a pension input amount even though the actual discretionary benefit has yet to be awarded perhaps because it is claimed it is a case of ‘trapped’ discretion (i.e. where trustees feel obliged to follow past precedents even where they appear to have the discretion not to). Such an approach might be requested so that the discretionary benefit can be treated as already included in the opening value of the 2011-12 pension input period rather than in the closing value (where the discretionary benefit was actually given during the 2011-12 pension input period).
In the circumstances described above the member’s rights go up when any increase is given - not before. So, the increase will be captured for annual allowance purposes when it is given and not in anticipation of it happening.
However, in circumstances where it becomes established (for example through a Court judgement) that what had been believed to have been a discretion was, in fact, a right, the valuation might need to be altered. Such issues will always depend on the facts and circumstances of the particular case.