Scheme Pension - levelling option
mckayj
Member
We have a client who wants to opt for a scheme pension with levelling Option , however, we have noticed that it could impact on her Annual Allowance as it counts as PIA. In this particular case the scheme administrators have advised the PIA is £78,500 , client has no carry forward so we are forced to look at cancelling the application and looking at other options. I haven't come across levelling option before - can anyone explain the correlation between this and the Annual Allowance/PIA. Many thanks
Comments
Isn't this a PIE (Pension Increase Exchange)? If so, it could well impact her LTA. The value of her benefits will be tested against the LTA when the benefits are first taken. So (for instance) a pension of £48,000 per year would be multiplied by a factor of 20 to give a value of £960,000, which is within the LTA limit if there are no other pension rights. Any future increases to her pension income would be ignored
If she is being offered Pension Increase Exchange, the same calculation takes place, however the pension is much higher, and it is this which is tested against the LTA. In your example of £78,500, this would mean that the value of her benefits would be £1,570,000. This breaches the LTA and will be subject to a charge if there is no transitional protection in place.
Hope this helps
What is being "levelled"?
Are they saying you can level tranches (pre / post 97 / 04 etc) so they all increase by the same amount in payment - as presently some may escalate at different rates?
From that perspective I can see why it would be a pension input amount as there would be an ongoing future cost to the scheme in, say, changing a tranche that escalates by CPI to level it with a tranche that escalates by RPI.
But I could have the wrong end of the stick.....
Thanks Jona , they are saying that the pension from now until State Pension Age is say £6k p.a then at State Pension Age it reduces to £32 p.a (quite a dramatic increase) but I think the levelling is more to do with having a bigger pension now until state pension then when that kicks in the income levels out (??). Having discussed with a colleague I "think" the accrual comes into effect because it is a cost to the scheme at outset to provide the bigger income until SPA. That's how I am understanding it now . I emailed the administrators (Mercers) yesterday for an explanation but still waiting on a response.
Yes - if they are talking about an increase to the level of pre SPA benefits then that carries a cost to the scheme in securing those benefits for the member and that is therefore a PIA.