RPSM11103330 - Technical Pages: Lifetime allowance: The process for testing: In member's lifetime: Information from scheme: How the member statement should be expressed

How the member statement should be expressed

The statement should show the total level of lifetime allowance expended by BCEs under the scheme in respect of that member as a percentage of the standard lifetime allowance. See page RPSM12303040.

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

This makes the process of keeping track of the indexation of the actual amounts crystallising over time with the movement (rise) in the standard lifetime allowance each tax year as simple as possible. The statement also allows the member to provide evidence where necessary to the scheme administrator of other schemes.

See RPSM11103340 for an example.

The percentage used can be higher than 100% of the standard lifetime allowance where necessary. This may be relevant where the member is entitled to an enhanced lifetime allowance, or where a chargeable amount has arisen under a scheme. The percentage should always be expressed as a percentage of the standard lifetime allowance.

An example is given in RPSM11103350.

It may happen that, most unusually, a member’s rights have been subject to a lifetime allowance charge, but subsequently the individual becomes entitled to an enhanced lifetime allowance factor. This might occur for example where a registered pension scheme has received a transfer of rights from a recognised overseas pension scheme (see RPSM11101050) for a scheme member who, before the transfer, has already used-up more than 100% of the standard lifetime allowance. This would not change the position with regard to the lifetime allowance charge already levied. But in this situation, to ensure that the member is able to make use of the newly-created enhanced lifetime allowance, a credit may be given to reflect the enhancement. This is done by only counting the amount of lifetime allowance expended at the earlier benefit crystallisation event which was a ‘relevant untaxed amount’. This is the amount other than the chargeable amount in respect of which the lifetime allowance charge was made.

Example

John has a standard lifetime allowance of £1.5 million and in 2006-2007 crystallises £5 million through a purchase of a lifetime annuity under BCE 4. A lifetime allowance charge arises on a chargeable amount of £3.5 million. This is made up of the part of an annuity purchase price - £2,625,000 - which represents 75% of the excess over the available lifetime allowance and £875,000 being a scheme-funded tax payment of 25% of the excess.

John then arranges for a transfer to his scheme of rights from a recognised overseas pension scheme. The transfer of £500,000 provides a lifetime allowance enhancement factor of one-third which produces a personal lifetime allowance of £2.5 million (see RPSM11101100).

John then decides, still in 2006-2007, to crystallise the rights from the transfer by a further purchase of a lifetime annuity under benefit crystallisation 4. But whereas the previously-used amount for lifetime allowance purposes at the earlier benefit crystallisation event might have been £5 million, it is instead taken as £1.5 million, being the amount other than the chargeable amount at the earlier event. This allows John to have available lifetime allowance of £1 million at the current benefit crystallisation event (£2.5 million personal lifetime allowance less £1.5 million regarded as previously-used) so no lifetime allowance charge will arise.

How the above requirements interact with any pre-commencement pension in payment is explained in RPSM11103400.