RPSM11104140 - Technical Pages: Lifetime allowance: Valuing benefits on BCEs: Unsecured pension - BCE 1: Example of calculation of uncrystallised funds under a cash balance arrangement at age 75

Note: This page has no application where a member reaches their 75^th birthday on or after 6 April 2011. For such cases see the example at RPSM11104145.

An example of how the level of uncrystallised funds are calculated under a cash balance arrangement at age 75

Tony reaches age 75 on 1November 2008. He holds rights under a cash balance arrangement under an occupational pension scheme. He has not drawn any rights from that arrangement before.

The value of uncrystallised funds treated as designated to unsecured pension fund at that time (and hence crystallising through BCE 1) is the sum that would be made available to provide Tony with benefits under the arrangement at age 75 if Tony drew all his benefit entitlements at that time.

Under the terms of the scheme rules Tony becomes entitled to a cash balancebenefit equivalent to £5,000 for every year he has worked for the sponsoring employer when he retires. Tony has worked for the sponsoring employer for 25 years. So if Tony took benefits on his 75^th birthday he would have funds of £125,000 (25 x £5,000) made available under the arrangement to provide him with benefits. Tony could then choose how he wanted to use that £125,000, within the money purchase options open to him (buy a lifetime annuity, draw an unsecured pension/alternatively secured pension etc.).

The uncrystallised funds crystallising through BCE 1 immediately before his 75^th birthday are therefore taken as being worth £125,000, as this is the amount that would be available under the arrangement if he took all his benefit entitlements at that time. So £125,000 crystallises through BCE 1 at that time.