And how this may impact you
Accessing Your Pension
The lifetime allowance was previously the maximum value of pension benefits you can access without incurring a charge. It was a way of limiting the overall value of the pension tax advantages you could benefit from, and applied to the total value of all pension pots that you held (which may be across multiple providers). However, your state pension entitlement was excluded from lifetime allowance consideration.
Over an individual’s whole life they and their employer can pay money into a pension, with the aim of giving them enough money to live on when they reach retirement age. The main advantage of saving with a pension is tax relief, but there are limits to the amount of tax relief you can benefit from.
The standard lifetime allowance was £1,073,100 for the 2023/24 tax year. However, there were several forms of lifetime allowance protection which gave an individual a higher lifetime allowance.
Please see our separate lifetime allowance protection fact sheets for further information- these fact sheets can be found in our literature library or at the bottom of this page.
Each time you have a Benefit Crystallisation Event (which we have explained below), the value of the benefits being crystallised is tested against your remaining lifetime allowance. The amount of lifetime allowance you use at each event, and therefore the amount you have left for future events, is expressed as a percentage. This makes it easier to account for changes in the lifetime allowance if you have BCEs in different tax years.
Current legislation includes a number of different benefit crystallisation events (BCEs). BCEs apply to all pension clients during the lifespan of their SIPP or SSAS.
Your pension benefits are tested against the lifetime allowance when certain actions or events take place. These events are called BCEs.
A BCE is an event that triggers Curtis Banks (or any other provider), to test the pension value against the lifetime allowance for a client. In practical terms, when you trigger a BCE, they will have the plan valued, and then this value, or the amount being crystallised under the relevant BCE, will be tested against your lifetime allowance
When do BCEs occur?
The most common BCEs occur when:
- You access your pension benefits
- You turn age 75
- You die before age 75 with benefits which haven’t yet been tested.
There are also a couple of more unusual BCEs, such as transferring your pension to an overseas pension scheme.
When you turn 75, this triggers an automatic BCE, and we are required to test any pension savings that you have not yet accessed, as well as any growth on your drawdown funds.
The age 75 test is the last time that your pension is tested against the Lifetime Allowance. After age 75, no further tests are completed, even if your fund grows or if further designations to drawdown are completed.
For more information about BCEs, please refer to the Pensions Tax Manual.
There wasn’t always a limit to the amount of pension savings that you could have without incurring a tax charge. The Lifetime Allowance was first introduced on 6 April 2006, which is often known as A‐Day. Legislation changes have now removed the tax charge for excess funds above the lifetime allowance for the tax year of 2023/24 and it has been suggested that this limit will be removed altogether in 2024.
For people who had already built up large pensions before A‐day, it would have been unfair for them to face a potentially significant tax charge simply because the rules had changed. As a result, various forms of protection against the Lifetime Allowance were introduced. These protections will be modified moving forward to take into account changes to the Lifetime Allowance.
Please see below for links to our factsheets for the relevant protection types:
The lifetime allowance was a way of limiting the overall tax advantages your pensions could benefit from. Normally, all of your pension benefits are tested against the lifetime allowance. However there are circumstances in which it would be unfair to test benefits against the lifetime allowance: normally when the benefits have been built up in such a way that they have not benefited from UK pension tax advantages, or have already been tested.
A lifetime allowance enhancement factor is a way of protecting such benefits from the effects of the lifetime allowance.
For more information, please see here for key information regarding lifetime allowance enhancement factors.
A-Day refers to the 6 April 2006. It was the date on which multiple existing pension tax systems were overhauled and replaced with a new, single set of rules.
If this is your first post A-day BCE yes we will need to calculate your Pre A-day using the maximum annual income that you can currently take from your pre A-day pensions.
If this is not your first post A-day BCE then your pre A-day benefits should have been tested against the Lifetime Allowance already.
Following changes introduced in the budget 2023 should the LTA be exceeded, there will be no LTA excess lump sum charge. The LTA tests will remain for the 2023/24 tax year before as suggested by the Government the LTA is abolished in 2024.
As any excess funds are drawn from the pension tax will be charged at your marginal rate and deducted as PAYE.
There are different processes for BCEs which take place during your lifetime and ones which occur on your death.
For BCEs which take place during your lifetime, we will complete the test against the lifetime allowance. We will also ask you for enough information about your previous BCEs to work out whether you have exceeded the lifetime allowance.
For BCEs after you pass away, we will tell your personal representatives how much of the lifetime allowance is used. However, it is then the responsibility of your personal representatives to work out whether you have exceeded the lifetime allowance and, if necessary, report this to HMRC. HMRC will then contact the beneficiaries who received the death benefits from your pension(s) to request any income tax amount payable.
Whether or not you exceed the lifetime allowance, we will tell you how much of the lifetime allowance was used by the BCE. You’ll then have this information in case another one of your pension providers needs it for another BCE.