RPSM09104140 - Technical Pages: Member benefits: Lump sums: Pension commencement lump sum: Overview: Entitlement must arise before the member reaches age 75

Entitlement must arise before the member reaches age 75

A lump sum cannot be treated for tax purposes as a pension commencement lump sum if entitlement to it arises once the member has reached the age of 75. The one exception may be when the scheme administrator has incorrectly deducted a lifetime allowance charge - see RPSM11105360 for more information.

For the avoidance of doubt, provided the member becomes entitled to a pension commencement lump sum before reaching the age of 75 (other than by automatic designation – see below), it can be paid after age 75 so long as it is paid within 12 months of their becoming entitled to it.

[s216(1), BCE 1 and 5][Para 8(2), Sch 28][Para 1(3)(b), Sch 29][Para 34, Sch 10, FA 2005]

Not drawing a lump sum benefit is not a means for avoiding the lifetime allowance charge.

Where the member reaches age 75 any uncrystallised entitlements held within a defined benefits arrangement are required to be tested for lifetime allowance purposes at that time (through BCE 5).

Under a money purchase arrangement, where there is a given fund value, any uncrystallised funds still held are automatically designated to provide unsecured pension immediately prior to the member’s 75th birthday. This occurs even with an untraceable member. They are therefore tested for lifetime allowance purposes at that point through BCE 1. The possibility for an entitlement to a pension commencement lump sum to arise is not available in the case of such automatic designation, (see RPSM09103108 and RPSM11104070).