Further to the reduction of the Lifetime Allowance (LTA) to £1m from 6 April 2016, members who crystallise benefits after this date (without protection in place) will be subject to testing against the reduced LTA. However, members who provided sufficient notice and all of the required information in order to retire before 6 April 2016, but had their benefits paid after this date should have their benefits tested against the LTA prevailing before 6 April 2016 (£1.25m).
HMRC’s Pensions Tax Manual (PTM) provides the following examples to illustrate which LTA should be tested against:
- The first describes a member whose pension is payable from age 65 on 15 September, but is not actually paid until 1 October. The member has notified the scheme they wish to claim their pension and has provided all the necessary details for payment to be made. Therefore their actual right to receive their pension is 15 September and not 1 October.
- Another example is a member whose pension is payable from age 60 on 13 January 2013. The scheme writes to the member but they do not provide all the necessary details for payment to be made until more than 12 months later on 5 January 2015. This means they do not have an actual right to receive their pension until 5 January 2015.
The effective date of the Benefit Crystallisation Event (for example, retirement) is defined in the PTM as the date the member acquires an actual (as opposed to a prospective) right to payment of the relevant authorised pension benefit.
Read more information about this on gov.uk