RPSM11104100 - Technical Pages: Lifetime allowance: Valuing benefits on BCEs: Unsecured pension – BCE 1: Uncrystallised funds held under a cash balance arrangement at age 75

Uncrystallised funds held under a cash balance arrangement at age 75

Where dealing with a cash balance arrangement, the actual level of uncrystallised funds physically held in that arrangement at age 75 will not necessarily reflect the true value of the undrawn rights the member is entitled to under the arrangement at that time.

As such, the legislation prescribes a specific method as to how the level of uncrystallised funds held in a cash balance arrangement immediately before the member reaches age 75 should be calculated, and hence the amount that crystallises through BCE 1 at that point on the deemed designation to unsecured pension fund. The legislation does this in the same way as accrual under a cash balance arrangement is valued for annual allowance purposes (see RPSM06101000 onwards).

The value of the uncrystallised funds held immediately before the member’s 75th birthday, at the point of automatic designation to unsecured pension fund, is taken as being the amount that would be made available to provide the member with benefits at that time if the member became entitled to benefits under the arrangement at that point. So it is not the funds actually held in the cash balance arrangement at that time, but what funds would be there if the member decided to draw benefits on that date (ignoring any potential reduction that may be applied by the scheme, based on the member’s age).

RPSM11104140 gives an example.

Any funds that have not been crystallised under the arrangement at age 75, and that are actually physically held in the arrangement, are not deemed to be unsecured pension fund at that point. These funds do not therefore automatically become alternatively secured pension fund on the member’s 75th birthday, and cannot be used to provide an alternatively secured pension.