RPSM06100090 - Technical Pages: Annual allowance: Up to 5 April 2011: Overview: Exemption from annual allowance test - individual becomes entitled to all the benefits from the arrangement

Exemption from test: the individual becomes entitled to all the benefits from the arrangement

This guidance explains the annual allowance rules up to 5 April 2011. If you want to know how the annual allowance works after that date see RPSM06105000.

There is no annual allowance test in respect of an arrangement where before the end of the tax year the individual has become entitled to all the benefits from that arrangement.

One pension arrangement within a registered pension scheme

Where an individual has only one pension arrangement within a registered pension scheme and before the end of the tax year they become entitled to all the benefits from that arrangement, there is no pension input amount for that tax year and so nothing to test against the annual allowance. Entitlement to benefits arises when an individual acquires an actual right to draw benefits (i.e. not just a prospective right and not just by reaching normal minimum pension age). What is meant by entitlement is explained in more detail in RPSM11102050.

Multiple pension arrangements within a registered pension scheme and the member becomes entitled to all the benefits from one arrangement

Where the individual becomes entitled to all the benefits from one arrangement but has other arrangements in the same registered pension scheme, or arrangements in other registered pension schemes, then the pension input amounts to those other arrangements will be calculated as usual and form part of the total pension input amount.

Individual only takes part of their benefits within an arrangement

If only part of an individual’s pension rights within an arrangement give rise to an entitlement to benefits, for example within a pension fund valued at £100,000, the member designates £75,000 as being available to pay an unsecured pension and pension commencement lump sum, and leaves £25,000 uncrystallised, then the pension input amount for that arrangement will still relate to the whole of the rights under the arrangement for the pension input period concerned.

Multiple pension arrangements across multiple registered pension scheme and the member becomes entitled to all the benefits from all arrangements

When the individual becomes entitled to all rights to benefits from all arrangements from all the registered pension schemes of which the individual is a member, then no pension input amount will arise for the pension input periods ending with the benefit entitlement.

General example