Technical Note - Notional Earnings Limit
6th May 2015 - London
In response to a notification from the GRiD Regulations Committee, we are sharing the following message with our Group Death in service clients and / or intermediaries:
For those Group Life Assurance schemes that still have some form of “earnings cap” and calculate it using the formula originally set out in s590C of the Income and Corporation Taxes Act 1998 (now repealed), the figure for tax year 2015-2016 is £149,400.
The original calculation included escalation based on the Retail Price Index (RPI) at the previous September, as published by the Office of National Statistics (ONS). In 2013 the ONS reviewed the methodology it uses to calculate RPI, decided that it no longer met international standards and introduced an improved version of RPI –RPIJ.
RPIJ uses a different formula for calculating the weighting used when bringing together the aggregated prices for different categories of goods and services and produces a lower inflationary figure. However, RPI is still used for the uprating in some circumstances for example, private sector pensions and index-linked bonds.
Trustees and their advisers should review their own scheme rules and decide if they wish to adopt RPIJ as a method of increasing their earnings cap." Generali UK’s standard definition of the Earnings Cap follows this approach, so please contact us if any other approach is required.