Visit many QROPS websites and the Lifetime Allowance Charge is cited as a reason to transfer from the UK, even where funds are nowhere near the current allowance. The reason often cited being crystallisation of the fund – known as a Benefit Crystallisation Event (BCE) to avoid future tax.
The actual reality is, for many people, it is likely that the Lifetime Allowance will not be breached. Therefore, jumping into the abyss by transferring a pension to a QROPS when the BCE will not trigger a charge could be unnecessary and a very costly mistake.
The table below shows when such a BCE will trigger a potential lifetime allowance charge for funds over £1 million ( where protection is not applied- Lifetime Allowance )
Lifetime Allowance Charge and QROPS
More information can be found here ( QROPS and LTA Charge ) about QROPS and the Lifetime Allowance Charge but the Lifetime Allowance limits the amount a member can withdraw from a pensions without taxation penalties. If the member withdraws more than the lifetime allowance there is a tax charge on the excess amount.
Simply put, that tax due on the ‘lifetime allowance charge’ is :
- 25% of any income taken; or
- 55% of any lump sum taken
And only charged on any excess of either the current lifetime allowance or any protection. In our experience very few people exceed these figures and pay tax.
The BCE Dozen
There are 13 types of BCE where there is the potential for the Lifetime Allowance Charge. Take some time to look at this table to see if any will realistically ( and please give this proper thought ) affect your pension; bear in mind the current lifetime allowance is £1 million and it is still possible to apply for protection in excess of this with qualifying criteria.
I have tried to make this easy to read as the rules are quite complex and people should take advice from a qualified pensions adviser ( preferably with G60 or AF3 papers )
| Reason for Event | Name of Event | Detail |
| Taking Pension | BCE 1 | Funds moved to drawdown |
| BCE 2 | When member becomes entitled to a scheme pension | |
| BCE 3 | Increase to pension over allowable limit | |
| BCE 4 | Member entitled to lifetime annuity | |
| Funds not used at 75 or death before 75 | BCE 5 | Member reaches 75 in a final salary scheme without taking a pension |
| BCE 5a | Member reaches 75 with a pension in drawdown | |
| BCE 5b | Member reaches 75 with unaccessed invested funds | |
| BCE 5c | Member does not reach 75 and beneficiaries have a drawdown pension fund . | |
| BCE 5d | Where a member dies before their 75th birthday and relevant unused uncrystallised funds remaining at death are used to provide entitlement to a purchased dependants’ or nominees’ annuity. | |
| Pension Lump Sums | BCE 6 | Member is entitled to a lump sum |
| Death | BCE 7 | Lump sum paid to beneficiaries |
| Transfer to QROPS | BCE 9 | Transfer to a QROPS- not matter what the size of fund |
| Miscellaneous- other | BCE 9 | Payment of outstanding arrears on death, lump sums paid after clerical errors and tax free lump sums paid after death. |
QROPS and the lifetime allowance charge
For the majority of people that are working outside the UK , and have UK pensions, these BCEs that give rise to a lifetime allowance charge are only likely to apply beyond age 75 and death. If the pension is nowhere near £1 million, then an ill-judged move to a QROPS, when there is no need, could end up costing the member a considerable amount of money in the end.
Even for those over the lifetime allowance may not actually pay much tax, and any supposed tax saving can be wiped out by the cost and charges of moving to a QROPS.
The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not except any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.
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