How is pension growth assessed in a defined benefit scheme such as the Teachers’ Pension Scheme?
The Teachers’ Pension Scheme (TPS) is a defined benefit scheme providing pension benefits based on a formula of 80ths with an automatic lump sum for pre 2007 existing members or 60ths with an option to convert for new entrants from 1 January 2007. The question to be asked is how is the growth in benefits in TPS assessed against the Annual Allowance? The increase in benefits is assessed between the start and the end of the PIP. So for the 2006/2007 tax year, a comparison is undertaken between 6 April 2006 (when the Annual Allowance was introduced) and 31 March 2007 (the nominated PIP end date of the scheme). For the 2007/2008 tax year, the relevant PIP comparison dates will be 1 April 2007 and 31 March 2008. The difference in the value of benefits at the beginning of the PIP is compared with the value of benefits at the end of the PIP. This can be calculated by using the following formula: (Current Annual Pension less Previous Annual Pension) X 10 + (Current Lump Sum less Previous Lump
