RPSM11104105 - Technical Pages: Lifetime allowance: Valuing benefits on BCEs: Unsecured pension - BCE 5B: Uncrystallised funds held under a cash balance arrangement when member reached age 75 after 6 April 2011
Note: This page has no application where a member reached age 75 before 6 April 2011 (see RPSM11104100).
Uncrystallised funds held under a cash balance arrangement when member reached age 75 after 6 April 2011
|[Para 8(3)(a), Sch 28][Para 18(4), Sch 10, FA 2005][s277(a)]|
Where a member has uncrystallised funds held under a money purchase arrangement and they reach age 75 on or after 6 April 2011, these funds are known as remaining unused funds. BCE 5B is triggered in relation to the remaining unused funds when the member reaches age 75. BCE 5B applies to remaining unused funds in an arrangement whether or not some of the funds in the arrangement were crystallised before age 75 e.g. part of the funds were designated as available for the provision of drawdown (before 6 April 2011 unsecured) pension. At the time the funds were designated a BCE 1 will have occurred (see RPSM11104060)and at age 75 a BCE 5A will occur (see RPSM11104640). The remaining part of the fund which has not been designated (or used to purchase a lifetime annuity or scheme pension) will be remaining unused funds at age 75 giving rise to a BCE 5B.
Where dealing with a cash balance arrangement, the actual level of remaining unused funds physically held in that arrangement at age 75 will not necessarily reflect the true value of the undrawn rights the member is entitled to under the arrangement at that time.
As such, the legislation prescribes a specific method as to how the level of remaining unused funds held in a cash balance arrangement when the member reaches age 75 should be calculated, and hence the amount that crystallises through BCE 5B at that point in time. The legislation does this in the same way as accrual under a cash balance arrangement is valued for annual allowance purposes (see RPSM06101000 onwards).
The value of the remaining unused funds held on the member’s 75th birthday is taken as being the amount that would be made available to provide the member with benefits at that time if the member became entitled to benefits under the arrangement on that day. So it is not the funds actually held in the cash balance arrangement at that time, but what funds would be there if the member decided to draw benefits on that date (ignoring any potential reduction that may be applied by the scheme, based on the member’s age).
RPSM11104145 gives an example.