RPSM11104910 - Technical Pages: Lifetime allowance: Valuing benefits on BCEs: Pension in payment on 6 April 2006: When a pension is considered for lifetime allowance purposes

When a pre-commencement pension is considered for lifetime allowance purposes

A pension benefit in payment from a tax approved source that started being paid before 6 April 2006 is only considered for lifetime allowance purposes the first time a BCE is triggered in respect of the member on or after 6 April 2006 (see RPSM11104920).

Such a pension is referred to in the legislation as a ‘pre-commencement pension’. The reason such pensions need to be considered in this way is because, as these pensions in payment arose before 6 April 2006, they will not have been tested for lifetime allowance purposes when they began to be paid.

What pensions represent a pre-commencement pension?

The definition of a pre-commencement pension catches what the legislation refers to as a relevant existing pension. A relevant existing pension means

• a pension paid from a retirement benefits scheme approved under Chapter I Part 14 ICTA 1988,
• a pension paid from a former approved superannuation fund. These are schemes that were approved under s208 ICTA 1970 just before 6 April 1980, have not been approved under Chapter I Part 14 ICTA 1988 and have not received any contributions since 5 April 1980,
• a pension paid from a relevant statutory scheme as defined in s611A ICTA 1988 or a scheme treated by HMRC as if it was a relevant statutory scheme,
• an annuity, or pension paid as income drawdown from an annuity contract used to secure benefits from any of the above 3 types of schemes,
• a pension from a scheme or fund mentioned in s613(4)(b) ICTA 1988 (Parliamentary pension schemes or funds),
• an annuity under an annuity contract or trust scheme approved under s620 or s621 ICTA 1988 or a substituted contract within the meaning of s622(3) ICTA 1988,
• an annuity provided from the funds of a personal pension scheme approved under Chapter 4 Part 14 ICTA 1988, or
• a right to income withdrawals from a personal pension scheme under s634A ICTA 1988

Only a pension paid to the individual as an actual member of a scheme is caught within this definition. A widow(er), surviving civil partner or dependant pension is not treated as a pre-commencement pension.

RPSM09101340, RPSM09101840 and RPSM09102110 explain how such pre- commencement pensions are treated and defined from 6 April 2006 onwards, as far as fitting into the post 6 April 2006 regime. RPSM09101080 covers the position with regards a deferred annuity (or ‘section 32’) policy in existence on 5 April 2006.

{s219(7) and article 20 of the Taxation of Pension Schemes (Transitional Provisions) Order SI 2006/572

For the avoidance of doubt where the first benefit crystallisation event that occurs after 5 April 2006 is BCE 7 – the payment of a lump sum death benefit – the pre- commencement pension will be a deemed BCE.