RPSM09105220 - Technical Pages: Member benefits: Lump sums: Lifetime allowance excess lump sum: Lifetime allowance issues

Lifetime allowance issues surrounding the payment of a lifetime allowance excess lump sum

Lifetime allowance test ( BCE 6)

Entitlement to receive a lifetime allowance excess lump sum is an actual trigger for a lifetime allowance test through BCE 6. This is because, until a benefit entitlement actually arises or a lump sum is paid, a BCE does not actually occur (nor does any chargeable amount arise). As such the entitlement to that lump sum needs to be caught through BCE 6 as a relevant lump sum (see RPSM11104720).

Where a scheme pension is being commuted to provide a lifetime allowance excess lump sum the level of lump sum paid will be decided by the scheme. The payment may not necessarily be the same as the potential crystallised value of the scheme pension given up to generate the lump sum payment. This is explained on RPSM11105060.

Payment before age 75

Once the member reaches the age of 75 they lose the right to an authorised lump sum benefit (other than possibly a refund of excess contributions lump sum). This applies equally here to a lifetime allowance excess lump sum.

All benefit entitlements held in a registered pension scheme will be tested for lifetime allowance purposes by the time the member attains the age of 75. Any uncrystallised funds or prospective (rather than actual) entitlements an individual holds as they come up to their 75th birthday will be tested for lifetime allowance purposes immediately before they reach that age (either through BCE 1 or BCE 5). The only time a lifetime allowance test is triggered after that date is where a scheme pension in payment is augmented beyond a permitted margin (BCE 3), and then only the excess augmentation crystallises for lifetime allowance purposes.

So at age 75 all the member’s benefits will have crystallised and been tested for lifetime allowance purposes, even if they have not been paid yet. As such, any chargeable amount will have been identified, and a liability to a lifetime allowance charge will have arisen. So there will never be a need or opportunity to pay a lifetime allowance excess lump sum once the member has reached age 75.