RPSM11102080 - Technical Pages: Lifetime allowance: When you test for the lifetime allowance: Age 75 and money purchase arrangements

Testing against the lifetime allowance at age 75: money purchase arrangements (including cash balance arrangements)

Before 6 April 2011, any uncrystallised funds held in a money purchase arrangement (including a cash balance arrangement) when the member reached their 75^t h birthday were deemed to have been designated to provide an unsecured pension under the arrangement in question. This meant that

• if the member already held an unsecured pension fund under the arrangement those uncrystallised funds were automatically absorbed into that existing unsecured pension fund immediately before they reached 75, or
• if the member had no unsecured pension fund already under the arrangement those uncrystallised funds were automatically treated as creating such a fund under that arrangement.

In both cases the deemed designation triggered BCE 1, with the amount crystallising being the value of the uncrystallised funds held at that point. This occurred whether or not the member subsequently decided to use those funds to purchase a lifetime annuity contract or scheme pension or used them to generate an alternatively secured pension.

RPSM11104100 explains how the crystallised value of any uncrystallised funds was calculated at this point under a cash balance arrangement.

There was no entitlement to a pension commencement lump sum in connection to this deemed designation, so all of the uncrystallised funds held fell within BCE 1.

The point of designation was immediately before the member reached age 75 - so just before midnight (23:59 hrs) the day before that birthday. This was the effective date funds had to be valued for BCE 1 purposes.

From 6 April 2011 onwards the position is different. Following the repeal of paragraph 8(2) and (3) of Schedule 28 to Finance Act 2006, there is no longer a deemed designation in respect of uncrystallised funds when the member reaches age 75. Instead, any uncrystallised funds held in a money purchase arrangement (including a cash balance arrangement) when the member reaches their 75th birthday are remaining unused funds. This applies regardless of whether the member already holds a drawdown pension fund under the arrangement.

When the member reaches age 75 there is a BCE 5B (see RPSM11104095) in relation to the remaining unused funds.

As there can be no BCE after age 75 apart from BCE 3 (see RPSM11102070), when the member comes to take benefits from their remaining unused funds after age 75 those benefits are not tested against the lifetime allowance. They will of course already have been tested against the member’s lifetime allowance as a BCE 5B (see RPSM11104095).

If the member wishes to take a pension commencement lump sum after reaching age 75 then, solely for the purposes of deciding whether the member satisfies the pension commencement lump sum condition that they have available lifetime allowance (see RPSM09104130), the fact that a BCE 5B has occurred is disregarded. So any LTA used up by a BCE 5B does not count in calculating whether the member has available lifetime allowance. On the other hand, if the member has already taken benefits from the same or another arrangement under a registered pension scheme after age 75 or some other event has occurred that would have been a BCE but for the fact that the event occurred on or after the member reaching age 75, then solely for the purposes of calculating whether the member has available lifetime allowance as a condition for paying a pension commencement lump, those events are treated as though they were BCEs. See RPSM09104140 for more details.