IPTM3650 | Personal portfolio bonds: calculation method: ITTOIA05/S522

Where a policy or contract is a personal portfolio bond (PPB) at the end of the ‘insurance year’ – IPTM3505 - there is a PPB gain if the sum of premiums paid and total amount of PPB excesses exceeds the total amount of part surrender gains. The PPB gain is equal to 15% of the excess (ITTOIA05/S522). This calculation is not performed for the ‘final insurance year’ – see IPTM3600 and IPTM3505.

Premiums paid

This is the total amount of premiums paid on the policy or contract since it began up to the end of the insurance year.

Total amount of personal portfolio bond excesses (ITTOIA05/S523)

The calculation is performed for each previous insurance year successively, starting with first year of the policy or contract, irrespective of whether it was a PPB at the end of the year in question. The total amount of personal portfolio bond excesses is the sum of the gains from those calculations. It is nil if there is no previous insurance year.

Total amount of part surrender gains (ITTOIA05/S524)

This is the aggregate of previous insurance years’ gains, which have arisen under the part surrender periodic calculation rules – see IPTM3560 and IPTM3565. It is nil if there is no previous insurance year.

Any year in which the policy or contract is not a PPB is included in the calculation. So the relevant premiums, previous gains and ‘excess events’ are those of any insurance year of the policy or contract, irrespective of whether it had PPB status at that time.

Gains that arose on previous part assignments are not brought into the calculation.

In practice

It helps to construct a table for each year as follows. A + B – C is the PPB excess for year y. In year 1, B and C will be nil.

Year = y

(A) = Premiums paid, years 1 to end year y

(B) = Cumulative amount of PPB excesses for years 1 to (y – 1)

(C) = Aggregate part surrender gains for years 1 to (y – 1)

PPB gain for year y = 15% * (A + B – C)