RPSM11104640 - Technical Pages: Lifetime allowance: Valuing benefits on BCEs: Member reaches age 75 before 6 April 2011 without taking all benefits or having designated as available for unsecured pension or where designation has earlier been made: Benefits from a money purchase arrangement

Note: This page has no application where a member reaches age 75 on or after 6 April 2011. For the position from 6 April 2011 see RPSM11104645.

Why a money purchase arrangement is not covered by BCE 5, and where a member reaches age 75 before 6 April 2011 having previously designated funds as available to provide an unsecured pension (BCE 5A) and where all or part of the funds in the arrangement have not been crystallised (BCE 1)

Before 6 April 2011, there was no need to catch money purchase arrangements through BCE 5 given that under a money purchase arrangement any uncrystallised funds held at age 75 were deemed to be designated into unsecured pension fund at that time. A lifetime allowance test was therefore triggered at that point through BCE 1, see RPSM11104090.

BCE 5A: Where a member reaches age 75 having previously designated funds as available to provide an unsecured pension

It may happen that a member had earlier designated funds as available to provide an unsecured pension and reached age 75 without either having taken a lifetime annuity (in which case BCE 4 would have occurred) or a scheme pension (in which case BCE 2 would have occurred). Or such a lifetime annuity or scheme pension has been taken, but only by application of part of the unsecured pension fund. So part of the unsecured pension fund was still in place when the member reached age 75.

BCE 5A applied such that the amount crystallised on the member reaching age 75 would be -

• the amount of the sums or assets representing the unsecured pension fund of the member
• less the amount (or the appropriate amount) of the amounts originally crystallised under BCE 1 when the member designated funds as available for unsecured pension.

Taking the examples for Andy in RPSM11104550. If Andy did not purchase a lifetime annuity, so BCE 4 did not occur, but instead reached age 75 at that point, then the amounts crystallised would have been the same as described in those examples.

It can be seen therefore that BCE 5A merely performed the same function of a further lifetime allowance test as occurred when a lifetime annuity or a scheme pension arose from an unsecured pension fund. And the prevention of overlap rules applied to ensure that it was only net growth (investment growth less payments of income made) in the unsecured pension fund remaining since the original designation(s) that was tested.

The amount to be reduced under BCE1 for the purpose of BCE5A was the amount originally designated as available for unsecured pension but which had not since been applied as a lifetime annuity or scheme pension. So, for example, if the original amount designated was £100,000, and £75,000 had been applied towards a lifetime annuity, then £25,000 would have been deducted for the purpose of BCE 5A (see also RPSM11104540).

Where the entitlement to the unsecured pension arose before 6 April 2006

[Articles 29 and 29A The Taxation of Pension Schemes (Transitional Provisions) Order 2006 - SI 2006/572]

There will be no BCE 4, BCE 2 or BCE 5A in respect of so much of a lifetime annuity or scheme pension that is purchased from an unsecured pension fund that represents unsecured pension in payment on 5 April 2006 (see RPSM09102110).