What is a Benefit Crystallisation Event (BCE)?
A Benefit Crystallisation Event (BCE) is when the pension scheme administrator (or in certain circumstances, the pension scheme member’s personal representatives) must test the value of the benefits in a member’s pension scheme that are being crystallised, or deemed to be crystallised, against the member’s lifetime allowance.
Benefits are tested not only when benefits come into payment before their 75th birthday but also after their 75th birthday. Even if the value of a member's fund was within the lifetime allowance when benefits were first drawn, subsequent investment growth, or the failure to draw income at least equal to the investment growth, could result in a lifetime allowance tax charge at age 75.
The main Benefit Crystallisation Events:
The member takes benefits before age 75.
- BCE 1 - member designates funds to provide a drawdown pension
- BCE 2 - member becomes entitled to scheme pension
- BCE 4 - member uses funds to buy a lifetime annuity
- BCE 6 - member becomes entitled to a pension commencement lump sum (tax-free lump sum) or an uncrystallised funds pension lump sum
Please note: BCEs 1 and 6 where the member receives a pension commencement lump sum, usually take place at the same time.
On the member’s 75th birthday.
- BCE 5A – member reaches age 75 with drawdown pension funds (crystallised funds)
- BCE 5B – member reaches age 75 with unused uncrystallised funds
On the member’s death before age 75.
- BCE 5C – unused uncrystallised funds are designated to a beneficiary’s drawdown pension fund
- BCE 5D – unused uncrystallised funds are used to purchase an annuity for a beneficiary
- BCE 7 – a lump sum paid to a beneficiary from unused uncrystallised funds
When a member transfers pension funds to a qualifying overseas pension scheme (QROPS) before age 75.
- BCE 8 – uncrystallised funds and any increase in value of crystallised funds
Any event prescribed in regulations as being a crystallisation event.
- BCE 9 -payment of arrears in pension instalments after death, certain payments of tax-free cash based on pension errors and tax-free cash type payments paid after death.