If an individual has a protected pension age of less than 50
their
lifetime allowance will be reduced if they take
benefits before
normal minimum pension age. The exception to this
is if the individual is a member of one of the schemes listed in
RPSM03106050 (public service pension
schemes for uniformed services).
The member will have their lifetime allowance reduced by 2.5%
for each complete year between benefit crystallisation and the
member reaching normal minimum pension age. So if a member takes
benefits on their 35th birthday in 2007 their lifetime allowance
will be reduced by 35% (2.5 x the 14 complete years between age 35
and 50).
RPSM03106080 to
RPSM03106100 gives more information,
with examples, on how this reduction of the lifetime allowance
works.
Where the individual does not have a protected lump sum the reduced lifetime allowance will also affect the amount of pension commencement lump sum that can be paid. The maximum lump sum will be the lesser of
Where an individual has primary protection as well as a
protected pension age of less than 50 their enhanced lifetime
allowance will be reduced in a similar manner on payment of
benefits before normal minimum pension age.
Example
Jacek has primary protection with an enhanced lifetime allowance factor of +1. He also has a protected pension age of 35. In June 2010 when the standard lifetime allowance is £1.8 million Jacek is 35 and he take benefits worth £2 million from one of his pension schemes. Jacek’s enhanced lifetime allowance is £3.6 million but because he is taking benefits early his lifetime allowance is reduced by 47.5% to £1.89 million. This means that £110,000 of the crystallising benefits will be liable to the lifetime allowance charge.
| Glossary ( RPSM20000000) |
