RPSM15106010 - Technical Pages: Special annual allowance: Becoming entitled to benefits or member dies: Test against SAA where benefits taken or member dies

This guidance only applies for the 2009-10 and 2010-11 tax years.

The special annual allowance may apply when benefits are taken or member dies

For the purposes of the special annual allowance where all benefits are taken under an arrangement, there will, except as provided below, be a test against the available special annual allowance. This is different from the position of the annual allowance (see RPSM06100090 and RPSM06100100).

The special annual allowance test will not apply in respect of an arrangement where, before the end of the tax year the individual has become entitled to all of the benefits from the arrangement and either Condition A or Condition B is met.

Also, the special annual allowance test will not apply in respect of an arrangement where, before the end of the tax year, the individual dies and Condition A is met.

Condition A

The member’s arrangement is a defined benefits arrangement and, at the time that the member becomes entitled to benefits, or dies, there are at least 20 members in the pension scheme in respect of whom benefits are accruing or scheme pensions are being paid (note - members with deferred benefits only do not count for this purpose but life assurance only members and members with benefits in schemes which are closed to future service where benefits are linked to future salary increases would count).

Condition B

The benefits are being paid because the individual meets the ‘ill-health condition’ and the arrangement is held under any of the following pension schemes

• an occupational pension scheme 
• a public service pension scheme, or
• a group personal pension scheme.

For both conditions A and B there is a further requirement; that the taking of benefits is not part of a scheme or arrangement the main purpose, or one of the main purposes, is to avoid or reduce liability to the special annual allowance charge, annual allowance charge or lifetime allowance charge.

Where an individual becomes entitled to all the benefits from an arrangement and Condition A or B is met (or the individual dies and Condition A is met in relation to an arrangement), there is no pension input amount for that tax year in respect of the arrangement (or arrangements) concerned. The pension input amount for the arrangement concerned is ignored for the purpose of the special annual allowance. This means the pension input amount for the arrangement concerned does not have to be included as part of the total pension input amount for the tax year concerned, in turn the amount would not be included as part of the total adjusted pension input amount and the input amount, if it would otherwise have been a protected pension input amount, would not have the effect of reducing the individual’s special annual allowance.

Entitlement to benefits arises when an individual acquires an actual right to draw benefits (i.e. not just a prospective right and not just by reaching normal minimum pension age). What is meant by entitlement is explained in more detail in RPSM11102050.

How the pension input amount is taken into account when it must be tested for the purpose of the special annual allowance because Condition A or B does not apply will depend on whether all, or some, of the input amount is a protected pension input amount or whether it is included as part of the total adjusted pension input amount.