RPSM09104540 - Technical Pages: Member benefits: Lump sums: Pension commencement lump sum: Maximum amount: Available portion: How the legislation defines this
If the entitlement arose on or after 6 April 2011 you should first read the guidance at RPSM09104195
An explanation of how the legislation actually defines the available portion of the member’s lump sum allowance
The way the legislation works here is similar to the way that the legislation defines an individual’s available lifetime allowance at a particular BCE.
What the legislation says
|[Para 2(6) to (8), Sch 29]|
The available portion of the member’s lump sum allowance is defined in the legislation by the following formula
CSLA - AAC
CSLA = the current standard lifetime allowance
AAC = the aggregate of ‘the relevant amount’ in the case of all earlier BCEs which have occurred in relation to the member each adjusted by a specified indexation factor (see below). If no such BCE has occurred AAC equals nil.
Subject to the following exception ‘the relevant amount’ in the case of a BCE is the amount crystallised by it.
The one exception is if the BCE is becoming entitled to a scheme pension under a money purchase arrangement. If so ‘the relevant amount’ is the aggregate of
- the amount of such sums held for the purposes of the pension scheme, and
- the market value of such of the assets held for the purposes of the pension scheme,
as applied in (or in connection with) the purchase or provision of the scheme pension and any related dependants’ scheme pension (as defined in RPSM09104405).
What is covered by ‘AAC’
[Para 2(6), Sch 29] [The Taxation of Pension Schemes (Transitional Provisions) Order 2006 - SI 2006/572]
For the avoidance of doubt, the lump sum allowance is discounted by the amount that crystallised at all previous BCEs, and not just those relating to earlier payments of pension commencement lump sums. This is any amount that has crystallised through any of the ten BCEs since 6 April 2006.
Lump sums paid before 6 April 2006 are not normally included in the value of ‘AAC’. The exception is that a lump sum paid before 6 April 2006 but the related pension is deferred until after 5 April 2006 will be included in the value of ‘AAC’ where the conditions set out in RPSM09104542 are met.
This sum is also discounted by any deemed crystallisation in respect of pre-commencement pensions in payment on 5 April 2006 (see RPSM11104930 and RPSM11104940). This discount is applied where the payment of the pension commencement lump sum is the first BCE post 6 April 2006 in respect of that individual.
The position where simultaneous BCEs occur is covered in RPSM11102030.
Adjustment of ‘AAC’
|[Para 2(7), Sch 29]|
The adjustment referred to above is calculated by the simple formula below
CSLA = the current standard lifetime allowance,
PSLA = the standard lifetime allowance at the time of the previous BCE.
The adjustment reflects the fact that the standard lifetime allowance may have increased from year to year. This is exactly the same thing that happens where testing against the lifetime allowance over time (where previously crystallised amounts are adjusted in line with the increase in the standard lifetime allowance between the two BCEs).