Queries on Relevant Benefit Crystallisation Event statements

As part of the transition from the old Lifetime Allowance (LTA) regime into the new Lump Sum allowance (LSA) and Lump Sum and Death Benefit Allowance (LSDBA) regime, there are new requirements for registered pension schemes to provide members with? “LSA / LSDBA used” statements (also known as Relevant BCE statements) rather than the old “LTA% used” statements.

The last couple of weeks have seen several queries from Aries members on this area so, for this article, I will consider some of the issues that have been raised with us.

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Is a Relevant BCE statement needed in this case?

Our first case concerned a member who has just designated part of their money purchase benefits as available for flexi-access drawdown. Unusually, in this case, it appears that the member did not take any Pension Commencement Lump Sum (PCLS) in connection with that designation.

Our enquirer’s automated systems produced a Relevant BCE statement for the member, however the question is whether or not the scheme needs to issue it?

We were able to confirm that a Relevant BCE statement is required where the member has had a Relevant BCE under the scheme (this is entirely logical). The designation of funds as available for flexi-access drawdown is not a Relevant BCE for the purposes of either the LSA or the LSDBA.

Now, it is almost taken as read that, where a member does designate any funds as available for flexi-access drawdown, they will - where possible - take a PCLS in connection with that designation, however the legislation does not actually require them to do so - all it does is to specify the maximum PCLS that they can take.

If, for whatever reason, the member here did not take any PCLS, then no Relevant BCE occurred and so no Relevant BCE statement is required.

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Should notional BCEs / notional Relevant BCEs be included in Relevant BCE statements?

To address this query, it is important to understand that, where a member has a ‘pre-commencement pension’ in payment (broadly, a pre-6 April 2006 pension in payment – see my earlier article here), then:

• If they had a BCE under any registered pension scheme between 6 April 2006 and 5 April 2024, the member is deemed to have had a notional BCE in respect of the pre-commencement pension immediately before that first real BCE, with the notional BCE using up some of the member’s LTA.
• ?If the member did not have a BCE under any registered pension scheme between 6 April 2006 and 5 April 2024, the member is deemed to have had a notional Relevant BCE in respect of the pre-commencement pension immediately before that first real Relevant BCE on or after 6 April 2024, with the notional Relevant BCE using up some of the member’s LSA / LSDBA.

The question, then, is whether these notional BCEs / Relevant BCEs should be reflected in any Relevant BCE statements.

We were able to confirm that in either case (whether the member has had a real BCE under the scheme between 6 April 2006 and 5 April 2024 or not), these notional BCEs / notional Relevant BCEs are just that: they are entirely notional. The pre-commencement pension does not become a BCE / Relevant BCE – it is just treated as though it were a BCE / Relevant BCE for the purpose of establishing the member’s available LTA / LSA / LSDBA at any actual BCE / Relevant BCE.

As such, there is no requirement to reflect any notional BCEs / notional Relevant BCEs in a Relevant BCE statement. This point was confirmed in question 98 of HMRC’s recent FAQ list.

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Do we need to produce a Relevant BCE statement where we have paid out a life cover lump sum?

To start here, a life cover lump sum is a fairly obscure type of lump sum death benefit that can be provided for certain members, where the member had a right to such a benefit before 6 April 2006.

Such lump sums are authorised payments (under Section 168 of the Finance Act 2004) by virtue of special transitional provisions.

Now, as covered in the first link in this answer, when the Finance Act 2004 came into force, life cover lump sums were not a BCE, and so could not trigger any requirement for a LTA% used statement.

In the new LSA / LSDBA world, however, the payment of any authorised lump sum death benefit (other than a charity lump sum death benefit or a trivial commutation lump sum death benefit) is a Relevant lump sum death benefit for the purposes of the LSDBA. As such, the payment of a life cover lump sum would now trigger the requirement to provide a Relevant BCE statement to the deceased member’s Legal Personal Representatives.

This is a clear change from the pre 6 April 2024 position.

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Aries Insight?provides comprehensive and detailed guidance on the application of the requirements to provide Relevant BCE statements, as well as insight into the meaning and impact of UK pensions regulation and clear guidance on the practical implications for pension providers, trustees, administrators and consultants.? If you are not already an Aries member and would like to find out more about what Aries Insight can offer you, then please drop me a mail at [email protected] or give me a call on 01536 763352.

Please note that?we are not lawyers or financial advisers.?The information above sets out our best understanding of the legislation and how it applies, but should not be taken as constituting legal or financial advice.