Are you aware that you can be taxed on your UK pension if it grows too much? Also, that if you reside outside the UK then you can avoid it by transferring your UK pensions into a QROPS? This is due to the rules surrounding benefit crystallisation events and the lifetime allowance (LTA).

A major advantage is afforded to those who wish to make a UK pension transfer into a QROPS and who may breach the lifetime allowance (LTA) limit. To see whether it may effect you consider;

The UK government have, since April 2006, set a maximum limit, the lifetime allowance (LTA), determining how much a pension can grow until the favourable tax treatment afforded to it is clawed back.
 
The calculation against the lifetime allowance only occurs when a pension is crystallised, hence benefit crystallisation event.
 
There are 11 BCEs in total
Due to the latest rules pension drawdown includes both flexi access drawdown and one-off pension withdrawals
Where a person becomes entitled to a defined benefit pension without having to take any further action. For calculation purposes the value is measured according to whether the entitlement occurred pre or post A-day
Applicable to scheme pensions only. Occurs in the event where a pensionable income increases on an annualised basis in excess of the greater of 5%, retail price index (RPI) or £250. If this BCE occurs the pension’s additional increase is valued at a factor of 20x income
 
This is the only benefit crystallisation event that can happen after age 75
A lifetime annuity guarantees a set rate of income in exchange for a lump sum of money
75 is the cut off age for the latest a pension can be first assessed against the lifetime allowance. BCE 5 deals with defined benefit schemes
75 is the cut off age for the latest a pension can be first assessed against the lifetime allowance. BCE 5A deals with defined contribution schemes which have not been converted into an annuity or scheme pension
This covers money purchase schemes which have not been placed into drawdown thereby triggering BCE 1. Following a change in pension rules there is no compulsion to access a pension before 75
Involves the entitlement to receive a lump sum rather than actually receiving it
This excludes any sums that have already been measured as a result of a benefit crystallisation event
On the event of a benefit crystallisation event a lifetime allowance calculation is made. Your crystallised pension value is assessed against the standard lifetime allowance with a provision for any protection you may hold. It is your responsibility to notify your pension provider regarding any protection that you may hold.
 
Should you exceed your lifetime allowance a charge will be applied against your pension fund prior to the money being released. In such instances, the pension provider will supply details on the level of pension that will be assessed against the LTA charge, charge due, & the calculation used. You then must notify HMRC via your self assessment form
A pension can be tested against the lifetime allowance on every occasion of a benefit crystallisation event (BCE) except for one instance. To ensure fairness, an allowance is provided to account for any pension that has previously been tested against the lifetime allowance.
 
Pension value tested = Pension value less allowance
 
The allowance is the prior value of the pension, or on a pro-rata basis if applicable, that was previously crystallised. If the deemed pension value for testing is negative this cannot be offset against any future lifetime allowance calculation or charge.
 
BCEs occur in chronological order. Where two or more occur on the same day a pension member can select the order that they are assessed
BCE 8 is unique in that once assessed no further benefit crystallisation events (BCE) can occur on the funds transferred to a QROPS. Every other instance of a BCE, by contrast, can result in a pension being retested against the lifetime allowance limit
It is easy to assume the LTA charge will not apply to you if its value is substantially higher than your current pensions. However, successive governments have changed the limits reducing the once £1.8 million ceiling to £1 million as of next year.
 
To ascertain how easily you may breach this lower limit consider the following examples where an employer matches your contribution and you retire at 65;
 
Pension growth. How your existing pension can exceed the current lifetime allowance charge when it is measured due to a benefit crystallisation event.
 
Also factoring in the inability to protect your pension if you wish to continue making contributions, the potential for tax creep, where the limits remain fixed but with inflation they drop in real terms, and the fact that the government is heavily indebted it suggests more people may pay this charge in the future
Pensions go through two key phases: accumulation and distribution. As people work towards retirement a pension is in the first phase, it is being added to by a person’s contribution and/or by the pension’s investment growth. The second phase can still provide investment growth but the pension will typically not be contributed to and benefits will be available (either in the form of income or a lump sum). Pension crystallisation is the event when a pension switches from the accumulation to distribution phase

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QROPS – Benefit crystallisation event written by Liberty Wealth average rating 5/5 - 15 user ratings