Stand-out Q – benefits pre & post A-Day…

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SAT, 24 MAR 2018

Our Technical Hub provides access to a wide range of pension tax and trust technical resources. Every now and then we post tweets covering stand out questions from our technical content and our answers in case others might also find them helpful. As Twitter’s character restrictions only allow for the bare bones of the Q&A we link to the details here, too.

Question:

An individual has an uncrystallised pension fund now worth £800,000, and has no form of protection in place. However, he took benefits from a pension in 2004 to the value of £500,000, which was payable as 100% tax free cash (TFC). How are these pre-commencement rights dealt with for the purposes of determining how much the individual has left of his lifetime allowance (LTA) of £1.03m?

Answer:

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 benefit crystallisation event (BCE) is triggered in respect of the member on or after 6 April 2006. The crystallised value of a pre-commencement pension is calculated by multiplying the annual rate of the pension in payment (in the case of drawdown there are special rules for identifying the annual rate of pension) at the point of the first BCE by a conversion factor. The factor for valuing such pensions is 25:1.

However, in this scenario there is no income payable from the pre A-Day pension as it was taken as 100% TFC and therefore in our opinion, the amount has no bearing on their remaining LTA. As a result we believe they still have £1.03m to work with.

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