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Pensions Tax Manual

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The lifetime allowance and the lifetime allowance charge: benefit crystallisation events: each of the benefit crystallisation events (BCEs) in detail: BCE 9 prescribed authorised member payments

Glossary PTM000001
   

 

Certain prescribed authorised member payments (BCE 9)
Payments of arrears of pension after death
Lump sums based on pension errors
PCLS-type lump sums paid after death

Certain prescribed authorised member payments (BCE 9)

Sections 164(1)(f) and 216(1) - BCE 9, Finance Act 2004

The Registered Pension Schemes (Authorised Payments) Regulations 2009 - SI 2009/1171

The above regulations set out what events will constitute a BCE 9, in relation to certain authorised member payments that have themselves been prescribed in regulations.

See PTM088100 for an overview of the benefit crystallisation events (BCEs) and the lifetime allowance.

The making of the following prescribed authorised member payments constitute a BCE 9.

Payments of arrears of pension after death

Regulation 16 of The Registered Pension Schemes (Authorised Payments) Regulations 2009 can authorise a payment made after the death of a member, who died on or after 6th April 2006 but before reaching age 75, representing arrears of scheme pension that were due to be paid to that member before death, but were not so paid because entitlement to those pension instalments could not be established before the member’s death. In order for such a payment to qualify under regulation 16, the conditions specified in PTM062800 must be met.

The amount crystallised for the purpose of BCE 9 is the amount of the lump sum payment that represents the arrears of pension being paid. The BCE is deemed to occur immediately before the time of the member’s death. The scheme administrator would still have a joint liability with the deceased member (through the member’s personal representatives) for any lifetime allowance charge.

Example 1

Under the rules of his scheme, Ledley was bound to take benefits upon reaching his 65th birthday (on 1 May 2013). However, attempts made by the scheme administrator to contact him to finalise matters were unsuccessful. Consequently it was not possible to establish Ledley’s actual entitlement to benefits at that time - see PTM088200.

When the position becomes known in September 2014 it is found that Ledley died on 8 December 2013. On 1 December 2014 a payment of £4,500 is made in respect of Ledley that represents the instalments of pension that it is established would have been due to Ledley under the scheme rules before his death had it been possible to confirm details with him in time.

A BCE 9 is deemed to have occurred on 8 December 2013 - the date of the member’s death.

The amount crystallised for the purpose of the BCE 9 is £4,500 - the total amount representing the arrears of pension actually paid on 1 December 2014.

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Lump sums based on pension errors

Regulations 17 and 18 authorise certain accidental over-payments of pension commencement lump sum (where the lump sum goes above the ‘permitted maximum’). These regulations only apply where a number of conditions are met, including the fact that the lump sum was based on an incorrect amount of scheme pension or, as the case may be, an incorrect purchase price for a lifetime annuity. Further details about the conditions for when regulations 17 and 18 apply are set out in PTM062800.

Becoming entitled to the pension commencement lump sum that has been overpaid, where the overpayment is authorised by the above regulations, actually counts as two BCEs:

  • the correct portion of the pension commencement lump sum is a BCE 6 - see PTM088670, and
  • the overpaid portion of the lump sum, is a BCE 9.

Both BCEs arise at the same time.

Example 2

Darren becomes entitled to a lump sum of £30,000 on 1 October 2014 and the lump sum is paid on 1 December 2014. It is reasonably believed that the amount of this lump sum was the proper amount of pension commencement lump sum and did not exceed the permitted maximum (in this case £30,000). The BCE 6 was processed on the basis of the amount of £30,000.

However, in February 2015 it transpires there was an error in the remuneration figures the employer had supplied to the scheme, and that Darren’s scheme pension had been set inadvertently at too high an amount. Darren had in fact, only really been entitled to part of the pension he received. The administrator decides not recover the overpayment but allows it to stand (under regulation 13). The administrator does however adjust the level of Darren’s pension down to the correct amount for future payments. Because the amount of the lump sum had been based on the inflated pension, it exceeded the permitted maximum, so with hindsight, not all of it qualified as a pension commencement lump sum. The administrator re-calculates that only £25,000 of the lump sum should count as the true pension commencement lump sum (the amount representing the permitted maximum by reference to the pension at its proper amount).

The BCE 6 is recalculated by reference to the £25,000 that Darren was entitled to on 1 October 2014 as part of the £30,000 lump sum actually paid.

The difference between what should have been paid and what was paid (£5,000) is processed as a BCE 9 which also occurred on 1 October 2014 (and not 1 December 2014 when the actual £30,000 lump sum was paid to Darren).

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PCLS-type lump sums paid after death

The formalities for payment of a pension commencement lump sum (PCLS) normally have to be finalised during a member’s lifetime. However Regulation 19 can authorise certain ‘pension commencement like’ lump sum payments finalised after the death of a member, providing they meet the conditions set out in PTM062800. The key characteristic of such payments is that the member’s entitlement to the pension commencement lump sum could not be established before they died.

Example 3

Following on from Example 1 above, Ledley would also have been entitled to a lump sum payment of £10,000. Had this lump sum been paid immediately before Ledley’s death it would have been a pension commencement lump sum.

A BCE 9 is deemed to have occurred on 8 December 2013 - the date of the member’s death.

The amount crystallised by the lump sum for the purpose of the BCE 9 is £10,000 - the total amount of the lump sum payment made on 1 December 2014 (being within the 1 year time limit from discovery).

Despite the payment being made after the member’s death, the process for establishing how much of the member’s lifetime allowance has been used up at the BCE and if there is chargeable amount, is the same as for when the member is alive. This BCE 9 is deemed in such a case to occur immediately before the member died. The scheme administrator would still have a joint liability with the deceased member (through the member’s personal representatives).