We are asked a wide range of questions on the tax and technical aspects of pensions. The most common topic that financial advisers enquired about In October was the lifetime allowance. Here are some of the questions and the answers provided. For more questions and answers on all topics, please visit our FAQs.
Q. When are pension benefits tested against the lifetime allowance?
A. There are four broad types of event that lead to the benefits in a registered pension scheme being subject to a lifetime allowance test: receiving a lump sum, receiving an income, the payment of death benefits and the transfer of benefits overseas. In addition, any benefits that have not been tested against the lifetime allowance are tested when the member reaches age 75.
Q. Can a lifetime allowance test be avoided by not taking benefits?
A. No, it can only be deferred. A lifetime allowance test usually takes place when a member becomes entitled to pension benefits. However, when they reach age 75 any pension benefits that have not been crystallised will be tested against the lifetime allowance along with any appreciation in value of a drawdown fund since benefits were designated. A transfer to a QROPS scheme or the member’s death before reaching age 75 will also trigger a lifetime allowance test.
Q. Is Fixed or Enhanced Protection lost if my client is automatically enrolled?
A. If a worker who is automatically enrolled into a workplace pension opts out of the scheme they will be treated as though they had never been a member of the scheme. This will not cause revocation of fixed or enhanced protection. The same treatment applies to those who cancel their rights within the ‘cooling-off’ period for the contract. Those who leave other than by opting out (e.g. those who leave outside the opt-out period or who leave after being contractually enrolled and so do not have an opt-out right) or outside of their cooling-off period have joined a new scheme and paid contributions. Membership of the scheme, therefore, causes loss of fixed or enhanced protection.
1 November 2017