RPSM11104610 - Technical Pages: Lifetime allowance: Valuing benefits on BCEs: Member reaches age 75 without taking all benefits: Benefits from a defined benefits arrangement
BCE 5: where a member reaches age 75 without taking all their entitlements under a defined benefits arrangement
|[s216(1), BCE 5][Para 14, Sch 32]|
Where a member holds benefits in a defined benefits arrangement there is nothing in the tax legislation requiring benefits to come into payment when the member reaches age 75. (However, prior to 6 April 2011, there may have been good reasons why the member would want them to do so - see comment below regarding the payment of a pension commencement lump sum).
The tax legislation tests these uncrystallised entitlements for lifetime allowance purposes at the member’s 75th birthday, whether or not the scheme pension and lump sum entitlements come into payment at that time.
This is what BCE 5 does - test the level of entitlements not taken by a member at age 75 under a defined benefits arrangement, by measure of the level of benefits that would come into payment at that time, if drawn.
In practice defined benefits schemes may well insist that benefits come into payment before the member reaches age 75, e.g. at a set date or on their retirement from the company. Before 6 April 2011, it had to be borne in mind that if entitlement to a lump sum arises once a member has reached their 75th birthday the lump sum payment will be an unauthorised member payment and taxed as such since entitlement to a pension commencement lump sum or payment of other authorised lump sum payments had to arise/be made before the member reached age 75. .
BCE 5 is there to ensure that all member benefits in existence at that point have been tested for lifetime allowance purposes by age 75.
Since 6 April 2011, all forms of authorised lump sum payments to a member (other than a lifetime allowance excess lump sum) can be paid after the member reaches age 75. See RPSM09104000 onward for more details. However, BCE 5 still applies when the member reaches age 75. As no BCE other than BCE 3 (see RPSM09102070) can occur after age 75 , benefits paid to or in respect of the member after that date are not tested against the LTA, However, they will already have been tested on the member’s 75th birthday under BCE 5.