RPSM09102090 - Technical Pages: Member benefits: An unsecured pension: Overview: Lifetime allowance test
This guidance only covers members who became entitled to an unsecured pension before 6 April 2011. If the member reached age 75 between 22 June 2010 and 5 April 2011 you should also read the guidance in RPSM17100000 onwards.
If the member became entitled to their pension on or after 6 April 2011 then see the guidance at RPSM09103500.
An unsecured pension and the lifetime allowance
| [s216(1), ‘Event 1’] |
The designation of funds to provide an unsecured pension triggers a lifetime allowance test (through benefit crystallisation event (BCE) 1). So at the point where funds are initially designated as available to provide unsecured pension the designated funds are tested for lifetime allowance purposes. And when any additional fund designation occurs the uncrystallised funds so designated will also be tested.
Any uncrystallised funds still held in a money purchase arrangement as the member reaches age 75 are automatically designated to be available to provide unsecured pension, and so are tested for lifetime allowance purposes at that time. The effective point of designation is immediately before their 75th birthday - just before midnight (23:59 hrs) the day before.
Example
Rob has £20,000 held in a money purchase arrangement. He takes £2500 as a pension commencement lump sum and £7500 as an unsecured pension. These benefits are tested for the lifetime allowance (through BCEs 1 and 6). Rob leaves the remaining £10,000 as uncrystallised funds.
Ten years later the value of Rob's uncrystallised funds has risen to £15,000. He decides to draw a further £10,000 as an unsecured pension, which is tested against his available lifetime allowance.
A year later Rob reaches age 75. The remaining £5000 of uncrystallised funds is tested for the lifetime allowance when Rob reaches age 75.
RPSM11104090 to RPSM11104110 give further details. RPSM11104100deals with the position where dealing with a cash balance arrangement.
Where the unsecured pension fund is used to purchase a lifetime annuity contract, that purchase also triggers a lifetime allowance test. Due credit is given to the earlier designation of the unsecured pension fund and the level of funds that crystallised for lifetime allowance purposes at that time. The same logic applies where a scheme pension is being provided from such funds. See RPSM11104080 and RPSM11104270.
Where a chargeable amount is identified at the BCE, the scheme will be obliged to pay the tax due. The amount net of tax will be the amount designated, and will hence be the amount crystallising through BCE 1. The amount crystallised plus the tax paid by the scheme will form the chargeable amount on which the lifetime allowance charge is due.
| Glossary (RPSM20000000) |
