RPSM11101130 - Technical Pages: Lifetime allowance: Level of lifetime allowance: Where an individual acquires pension credit rights after 5 April 2006

Where an individual (an ex-spouse or former civil partner of a member) acquires pension credit rights that are derived from a pension already in payment to their ex-husband, ex-wife or former civil partner (the original member), whose entitlement to that pension in payment arose after 5 April 2006 (making it a post-commencement pension in payment), that pension will already have been tested for lifetime allowance purposes at the point the pension came into payment, albeit in relation to the original member’s lifetime allowance entitlement rather than that of the individual now entitled to the pension credit rights.

To ensure the pension credit rights (or the proportion of those rights attributable to a post-commencement pension in payment) are not tested again for lifetime allowance purposes when the ex-spouse or former civil partner crystallises those rights, the lifetime allowance of the ex-spouse or former civil partner is increased by an appropriate lifetime allowance enhancement factor, to reflect the increased benefits provided by those pension credit rights.

This lifetime allowance enhancement factor in this circumstance is called the pension credit factor.

The pension credit factor is measured on the basis of the actual value of the pension credit rights derived from the pension in payment. It is the fraction of the standard lifetime allowance the relevant pension credit rights represented at the time the ex-spouse or former civil partner acquired those rights.

For example, if the pension credit rights are £150,000 at the time they are acquired by the ex-spouse or former civil partner and the standard lifetime allowance at that time is £1.5 million the pension credit factor is 0.1.

The pension credit factor is calculated by using the formula

This factor is then applied to the standard lifetime allowance at any future BCE to provide the uplift to the individual’s lifetime allowance for the purpose of that BCE unless the pension credit factor was generated before 6 April 2012, in which case the uplift for BCEs occurring on or after 6 April 2012, is provided by applying the factor to the figure of £1.8 million if this is more than the standard allowance. The uplift is then added to the standard lifetime allowance at the date of the BCE to arrive at the individual’s lifetime allowance (see RPSM11101100).