Annual allowance: pension input amounts: deferred members: ‘relevant percentage’ and ‘relevant statutory increase percentage’
Sections 230(5B, 5BA, 5BB, 5BC & 5C) and 234 (5B, 5BA, 5BB, 5BC, 5BD, 5BE & 5C) Finance Act 2004
Note – for tax year 2015-16 there are transitional rules for calculating pension input amounts, which includes a modification to the CPI limb of the ‘relevant percentage’ definition described below. PTM058080 has more details.
The ‘relevant percentage’
The relevant percentage is:
- an annual amount of increase required by the pension scheme rules relating to the arrangement, provided the rules were in force on a certain date, and
- the increase in the CPI over the twelve month period ending with a month that falls within the pension input period (the month having been chosen by the scheme administrator).
Note - for any tax year it is not the greater of the amount required by the pension scheme rules or the CPI measure.
An amount of increase required by the pension scheme rules will be a relevant percentage where the rules setting out the required amount were in force on:
- for ‘RPI based’ increases only, 6 April 2012, or
- for any other case, 14 October 2010.
PTM053930 has more details about what is meant by scheme rules being in force on a certain date.
An ‘RPI based’ increase means:
- an increase produced solely by the movement in the RPI, or
an increase which is the lower of:
- an increase produced solely by the movement in the RPI, and
- a specified percentage figure.
An example of the second limb of an ‘RPI based’ increase is where the rules require an RPI increase subject to a cap of 3 per cent. If the RPI increase is less than 3 per cent the RPI increase will be given. If the RPI increase is greater than 3 per cent, the increase is 3 per cent.
The ‘relevant statutory increase percentage’
This is all, or that part of, the percentage increase in a member’s rights under an arrangement which occurs during the pension input period which is attributable solely to certain statutory provisions.
Note - a percentage increase given in respect of one, or more, of the certain statutory provisions will count towards the relevant statutory percentage even if the scheme rules do not have an express mention of the certain statutory provision.
Note - if one or more of the certain statutory provisions have been incorporated into the scheme rules an increase in accordance with the scheme rule is recognised once only, as a relevant statutory percentage increase only.
Note - an increase can be regarded as being within the relevant statutory percentage if, for reasons of pension scheme administration, the amount of increase required by the statutory provision is rounded up to the nearest £10.
The statutory provisions concerned are:
- Section 15 of the Pension Schemes Act 1993 or section 11 of the Pension Schemes (Northern Ireland) Act 1993 - providing for increases to a guaranteed minimum pension because its commencement has been postponed
- Section 16 of the Pension Schemes Act 1993 or section 12 of the Pension Schemes (Northern Ireland) Act 1993 - providing for the revaluation of earnings factors for early leavers
- Chapter 2 of Part 4 of the Pension Schemes Act 1993 or the Pension Schemes (Northern Ireland) Act 1993 -providing for the revaluation of accrued benefits for early leavers
- Chapter 3 of Part 4 of the Pension Schemes Act 1993 or the Pension Schemes (Northern Ireland) Act 1993 -providing for the revaluation of guaranteed minimum pension for early leavers
- Section 67 of the Equality Act 2010 - this provision replaces the previous equal treatment provisions in section 62 of the Pensions Act 1965 and reads into scheme rules a sex equality rule. One effect of the sex equality rule is that it requires men and women to be treated equally in respect of their benefit entitlement for pensionable service from 17 May 1990 onwards.
Note - late retirement increases under Chapter 1 of Part 4 of the Pension Schemes Act 1993 or the Pension Schemes (Northern Ireland) Act 1993 are not relevant statutory increases. This is because schemes must first provide for late retirement uplifts before the legislation can apply, so the increases do not occur solely as a result of the statutory provisions.
PTM053930 has more details about late retirement increases and the deferred member carve-out.
PTM053910 has more details about the deferred member carve-out generally.