RPSM09300140 - Scheme Administrator Pages: Member benefits: Lump sum payments

A lifetime allowance excess lump sum

Where a member uses up 100% of their lifetime allowance, any amount that crystallises for lifetime allowance purposes above that allowance represents a chargeable amount. This chargeable amount will give rise to a lifetime allowance charge.

Once the member has used up all their available lifetime allowance the legislation permits a scheme to pay out all their remaining entitlements under an arrangement as a lump sum payment (a lifetime allowance excess lump sum). A scheme is allowed to pay out all (or part) of any funds held in the arrangement, or commute all (or part) of any pension entitlements that are going to arise under that arrangement, as a lump sum payment to the member

A registered pension scheme is not obliged to offer this option to its members. Whether or not a scheme offers the lifetime allowance excess lump sum option, or indeed insists upon it in certain circumstances, will depend on the scheme rules.

RPSM11105050 to RPSM11105320explain how the level of lifetime allowance excess lump sum paid is calculated and goes into more detail on the lifetime allowance charge liability. RPSM11105070 gives an example showing how this all works where only some of the benefits or amounts crystallising fall as a chargeable amount.