RPSM11102090 - Technical Pages: Lifetime allowance: When you test for the lifetime allowance: Age 75 and defined benefit or hybrid arrangements

Testing against the lifetime allowance at age 75: a defined benefit arrangement and a hybrid arrangement

A defined benefit arrangement

If a member’s benefits have not been drawn by age 75 under a defined benefits arrangement a lifetime allowance test is triggered through a specific BCE in the legislation (BCE 5). RPSM11104610 explains this.

Whether or not benefits are actually drawn at that or a future point is immaterial. The legislation is not forcing the individual to take their entitlements under the scheme (so is not forcing an actual entitlement to arise), but simply testing the prospective entitlements still held at age 75 as if they were being taken at that time.

A hybrid arrangement

A hybrid arrangement that provides for benefits on either a cash balance or other money purchase basis is dealt with exactly the same way here as a money purchase arrangement. So a test will be triggered through BCE 1 immediately before the member reaches their 75^th birthday, and any uncrystallised funds held in the arrangement will be deemed to be designated into unsecured pension fund (see RPSM11102080).

The position is more complicated where dealing with a hybrid arrangement which potentially provides benefits on either a defined benefits or a money purchase/cash balance basis. There are specific provisions in the legislation covering this, as explained in RPSM11104650.

From 6 April 2011 onwards, if the member wishes to take a pension commencement lump sum after reaching age 75 then, solely for the purposes of deciding whether the member satisfies the pension commencement lump sum condition that they have available lifetime allowance (see RPSM09104130), the fact that a BCE 5 has occurred in relation to the member is disregarded. So any LTA used up by a BCE 5 does not count in calculating whether the member has available lifetime allowance. On the other hand, if the member has already taken benefits from the same or another arrangement in a registered pension scheme after age 75 or some other event has occurred that would have been a BCE but for the fact that the event occurred on or after the member reaching age 75, then again solely for the purposes of calculating whether the member has available lifetime allowance as a condition for paying a pension commencement lump, those events are treated as though they were BCEs.