Benefit crystallisation events (BCEs)
Benefit crystallisation events (BCEs)

The following Pensions guidance note provides comprehensive and up to date legal information covering:

  • Benefit crystallisation events (BCEs)
  • What is a benefit crystallisation event?
  • Types of BCEs
  • BCE 1—designation of funds for drawdown during the member's lifetime
  • BCE 2—entitlement to a scheme pension
  • BCE 3—increase to a scheme pension in payment beyond a permitted margin
  • BCE 4—purchase of a lifetime annuity
  • BCE 5—reaching age 75 without having drawn all benefits in a DB arrangement
  • BCE 5A—reaching age 75 while in drawdown
  • BCE 5B—reaching age 75 while there are unused funds in a money purchase arrangement
  • more

THIS PRACTICE NOTE APPLIES TO UK REGISTERED PENSION SCHEMES

What is a benefit crystallisation event?

Under the UK’s registered pension scheme regime (for more information on which, see Practice Note: The Finance Act 2004, A-day and the pensions tax regime), a personal lifetime allowance is imposed in relation to all pensions savings under registered pension schemes.

A detailed description of the operation of the lifetime allowance is set out in Practice Note: The lifetime allowance. In summary, if benefits are taken in excess of an individual's lifetime allowance, a tax charge on the excess taken (known as the lifetime allowance charge) will arise. The lifetime allowance charge for benefits taken in excess of the lifetime allowance is:

  1. 55% if the excess benefits are taken as a lump sum, or

  2. 25% in all other circumstances

Benefit crystallisation events (BCEs) are events that trigger the test of whether an individual's lifetime allowance has been exceeded. To carry out that test, the scheme administrator must compare the amount of pension benefits crystallised by the BCE to the individual's remaining lifetime allowance. Any excess is subject to the lifetime allowance charge.

Types of BCEs

There are presently 12 BCEs, which are set out in section 216(1) of the Finance Act 2004 (FA 2004). These are:

  1. BCE 1—designation of funds for drawdown during the member's