RPSM11100040 - Technical Pages: Lifetime allowance: Basic principles: Operation of the lifetime allowance over time

Operation of the lifetime allowance over time

The purpose behind the lifetime allowance test and process is to ensure that individuals will face the same real aggregate lifetime allowance on their total pension rights built up with tax relief, irrespective of

• when they choose to take their pension benefits and the type of benefits they become entitled to, and
• whether benefits are taken from one scheme or from multiple schemes.

At any second or subsequent BCE, the amounts that crystallised at the previous BCE (or BCEs) is (are) increased in line with any increase in the standard lifetime allowance that has occurred since that previous BCE (or BCEs). So the percentage of the standard lifetime allowance that BCE represents will not alter as and when that allowance is increased over time. This means that an individual is not penalised for phasing in benefits over time, but nor do they gain an advantage.

This process also makes it easier for an individual to keep track of the amount they have crystallised through a BCE over time. To help individuals keep track of their available lifetime allowance a scheme administrator is required to give the member a statement telling them the percentage of the standard lifetime allowance they have used up in total under that scheme, either after every BCE or annually (see RPSM11100080). So going forward the member only has to remember that they have used up, for example, 25% of the standard lifetime allowance (as shown on the statements provided by the scheme administrators of the schemes they are a member of). From this they know that their available lifetime allowance at any future BCE will therefore be 75%.

The percentage expressed on the statement should go to two decimal places (i.e. 25.55%). This should be a rounded down figure, so 25.558% becomes 25.55%

The example on RPSM11100090 illustrates the above.