Withdrawing your pension and the impact on the LTA

Helping you to understand the impact when benefits are taken from your pension

Whenever benefits are taken from a pension, a benefit crystallisation event (BCE) occurs.
The value ascribed to a BCE is normally the value of any lump sum paid out plus the value of a pension moved into drawdown to provide future retirement income.When a defined benefit pension commences there is also a BCE, with the value ascribed calculated as 20 times the initial income plus any pension commencement lump sum (PCLS). Whenever a BCE occurs the value of your pension will be measured against your LTA. In all, there are thirteen potential circumstances in which a BCE could occur.The four most commonly incurred BCEs are:

Payment of a lump sum prior to the age of 75, such as a PCLS or a UFPLS

Entering drawdown

Taking a scheme pension (DB Income), and

Reaching the age of 75 with funds that are either in drawdown or uncrystallised.

Example: Calculating the value of your BCEs against the LTA

Pension

Annual Income

Value against LTA

NHS DB Pension

£18,500 and £50,000 tax-free lump sum

£18,500 x 20 = £370,000 + £50,000

Total benefits for the BCE is £420,000

ABC Corp GPP

£275,000 crystallised via flexi-access (£68,750 tax-free cash, and £206,250 into drawdown)

£275,000