Benefit Crystallisation Events (BCEs)
Taking benefits from any of your pension arrangements, crystallises (uses up) a percentage of your lifetime allowance and is called a benefit crystallisation event.
There are 8 different BCE calculations, depending on the source of the pension funds and your age at the time you crystallize your benefits.
Each benefit crystallisation event will use up some of your lifetime allowance, leaving less available lifetime allowance against which any remaining pension benefits will be tested. |
Benefit Crystallisation Event - Example:
In the 2009/2010 tax year, you decide to take the benefits from your £150,000 personal pension fund.
In the 2009/2010 tax year, the lifetime allowance is £1,750,000. You will have taken 8.57% of your lifetime allowance. You therefore have 91.43% remaining of your lifetime allowance.
You also have a final salary occupational pension, from which you take a £35,000 starting annual pension and a £105,000 tax-free lump sum in the following tax year, 2010/2011.
Your £35,000 starting final salary pension is multiplied by 20 to give a 'deemed value' of £700,000.
To this is added the tax-free lump sum of £105,000. This makes a total deemed value of £805,000.
As the lifetime allowance in the tax year 2010/2011 is £1,800,000 you apply your remaining lifetime allowance percentage of 91.43% to £1,800,000 giving a monetary amount of £1,645,740.
The total deemed value of £805,000 is less than £1,645,740 so there will be no excess fund charge.
Your deemed value of £805,000 is 44.72% of the 2010/2011 lifetime allowance of £1,800,000 and you previously used up 8.57% when you took your personal pension in 2009/2010, so you have now used up a total of 53.29% of your lifetime allowance.
You therefore have 46.71% remaining lifetime allowance, which could be used if you have any further pension benefits to take in the future.
