RPSM11103510 - Technical Pages: Lifetime allowance: The process for testing: In member's lifetime: Worked examples: Multiple BCEs under the same registered pension scheme
As this example is quite long it has been broken up into sections that can be navigated to using the links below.
Benefit payment 1: what the scheme administrator does before the BCE
Benefit payment 1: what the scheme administrator does after the BCE
Benefit payment 2: what the scheme administrator does before the BCE
Benefit payment 2: what the scheme administrator does after the BCE
Outline scenario
Judy holds uncrystallised funds in a money purchase arrangement.
On 9 October 2006, Judy decides she wants to draw 80% of her benefits. Judy tells the scheme administrator she wants to draw the maximum permitted pension commencement lump sum and use the residual funds being crystallised to provide an unsecured pension as soon as possible.
Judy takes the rest of her benefits in the 2010/11 tax year. She again decides to draw the maximum permitted pension commencement lump sum, with the remaining funds being used to provide an unsecured pension.
Benefit payment 1: what the scheme administrator does before the BCE
The scheme administrator identifies the potential date of the BCEs and calculates the anticipated crystallised value of the benefits as being £750,000 (£187,500 through BCE 6 and £562,500 through BCE 1). They write to Judy telling her that she would use up roughly £750,000 for lifetime allowance purposes, or 50% of the standard lifetime allowance for that tax year, if she drew the anticipated benefits.
The scheme administrator asks Judy to supply a statement within 1 month confirming the level of lifetime allowance she anticipates will have been used up at the time she wants to draw benefits. They also ask Judy
- does she have an agreed enhanced lifetime allowance entitlement,
- is she in receipt of any pensions that came into in payment before 6 April 2006, and
- has she crystallised or does she anticipate crystallising any other benefits under any other registered pension scheme, on or after 6 April 2006, prior to drawing benefits under this scheme, or at the same time.
The scheme administrator warns Judy of the penalties for giving out incomplete or false information.
Judy has not drawn any other pension benefits, is not entitled to an enhanced lifetime allowance, and confirms that she will have 100% of the standard lifetime allowance available at the BCEs.
The scheme administrator recalculates the amount crystallising through BCE 1 and BCE 6 on the actual day of the BCE and finds that it is still the same as the anticipated amount. The crystallised value of the benefits is below the amount of available lifetime allowance. The scheme administrator can pay out benefits without further action as no chargeable amount arises.
Benefit payment 1: what the scheme administrator does after the BCE
The scheme administrator sends Judy a statement by the end of the 2006/07 tax year to verify that she has used up 50% of the standard lifetime allowance under the scheme. They should send Judy similar statements every tax year (up to and including the tax year in which Judy reaches age 75) whilst a pension is in payment under the scheme (whether any drawdown (before 6 April 2011 unsecured) pension is paid or not, the existence of a drawdown (before 6 April 2011 an unsecured) pension fund counts as a pension in payment).
As the pension commencement lump sum paid does not exceed 25% of Judy’s pension rights there is no need to make an event report to HMRC.
Benefit payment 2: what the scheme administrator does before the BCE
When Judy takes her next lot of benefits in 2010/11 the scheme administrator calculates the anticipated crystallised value of these remaining benefits as £180,000. This second tranche of pension benefits represents 10% of the standard lifetime allowance at that time.
The scheme administrator writes to Judy with these figures, as previously, asking again if she is entitled to an enhanced lifetime allowance, as the position may have changed in the intervening period. They also ask about any other anticipated BCEs under other schemes taking place before benefits are crystallised under this scheme, or at the same time.
Judy confirms that she has no lifetime allowance enhancements, and that her available lifetime allowance at the anticipated BCE is 50% of the standard lifetime allowance.
As the benefits drawn under the pension fund will have used up 60% (50% plus 10%) of Judy’s lifetime allowance, there is no lifetime allowance charge.
Benefit payment 2: what the scheme administrator does after the BCE
Whether any drawdown (before 6 April 2011 unsecured) pension is paid or not, the existence of a drawdown (before 6 April 2011 unsecured) pension fund counts as a pension in payment. So the scheme administrator is required to send a statement to Judy in that tax year telling her that she has used up 60% of the standard lifetime allowance under that scheme. They should send Judy similar statements every tax year (up to and including the tax years in which Judy reaches age 75).
Again no event report to the HMRC is required.
| Glossary (RPSM20000000) |
