This guide is for financial advisers only. It mustn’t be distributed to, or relied on by, customers. It is based on our understanding of legislation as at May 2025.
The Finance Act 2024 and subsequent amending regulations changed the way pension benefits are tested for tax purposes when they’re taken. The benefit crystallisation events (BCE) that were in place from 6 April 2006 were replaced on 6 April 2024 by relevant benefit crystallisation events (RBCEs).
When a relevant lump sum is paid to a member (or in respect of a member after their death), it’s tested against their remaining lump sum allowance (LSA) and/or lump sum and death benefit allowance (LSDBA) to assess if the payment exceeds their remaining allowances. If it does, the excess payment is taxed at the recipient’s marginal rate of tax.
The LSA and/or LSDBA is reduced by the amount of the relevant lump sum paid.
Relevant lump sums paid in the event of:
- serious ill-health,
- death over 75 or payment,
- a death where the member was under age 75 at death, but the payment was not made within two years of the date the scheme administrator first knew (or could reasonably have been expected to know) of the member’s death,
will be subject to income tax but are still RBCEs for LSDBA purposes.
The LSA was set at £268,275 on 6 April 2024, but those with a valid lifetime allowance protection may be entitled to a higher LSA.
The payment of a relevant lump sum is a relevant benefit crystallisation event (RBCE) when the member becomes entitled to the relevant lump sum. It will reduce a member's LSA by the tax-free element of the lump sum.
The relevant lump sums that reduce a member's LSA are:
- pension commencement lump sums (PCLS) (refer to the notes section at the end of this page)
- an uncrystallised funds pension lump sum (UFPLS) payment (refer to the notes section at the end of this page)
- stand-alone lump sums ( refer to this page of the guide for full details Stand-alone lump sums | Adviser | Aegon)
Whenever an RBCE occurs, this is tested against the member's remaining LSA, and if it uses up the remaining LSA, the excess is subject to an income tax charge.
Example 1:
Maxine has an RBCE on 3 May 2024 – she received a PCLS of £80.000. She’s had no other RBCEs and hadn’t taken any benefits before 6 April 2024. She has no protections.
Her available LSA is therefore £268,275 at the RBCE. When the PCLS is paid, her LSA is reduced by the monetary amount of the tax-free element of the RBCE i.e. £80,000.
Her remaining LSA after the RBCE will be £268,275 - £80,000 = £188,275.
Example 2:
Gregor took an UFPLS on 1 June 2024. He accessed PCLS from another scheme on 1 May 2024 and used up £65,000 of his LSA, so has £203,275 left. He had no BCE's before 6 April 2024 and no protections.
The tax-free element of his UFPLS is £24,000, so on this second RBCE, his LSA is further reduced, leaving him with £179,275.
Not only do the above tax-free elements of the lump sums reduce the LSA, but they also reduce the LSDBA - alongside some other types of payments. The LSDBA was set at £1,073,100 on 6 April 2024, but those with a valid lifetime allowance protection may be entitled to a higher LSDBA.
The RBCE happens when a member becomes entitled to a relevant lump sum or a person is paid a relevant lump sum death benefit in respect of that member.
A relevant lump sum for the purposes of the lump sum and death benefit allowance is:
- A pension commencement lump sum (PCLS) (refer to the notes section at the end of this page).
- An uncrystallised funds pension lump sum (UFPLS) (refer to the notes section at the end of this page).
- A serious ill-heath lump sum (refer to this page of the guide for full details Ill-health and serious ill-health | Adviser | Aegon).
- A stand-alone lump sum (refer to this page of the guide for full details Stand-alone lump sums | Adviser | Aegon).
A relevant lump sum death benefit for the purposes of the lump sum and death benefit allowance is:
- a Defined Benefits Lump Sum Death Benefit,
- a Pension Protection Lump Sum Death Benefit,
- an Uncrystallised Funds Lump Sum Death Benefit,
- an Annuity Protection Lump Sum Death Benefit,
- a Drawdown Pension Fund Lump Sum Death Benefit,
- a Flexi-access Drawdown Fund Lump Sum Death Benefit.
Lump sum death benefits that are not relevant lump sum death benefits:
- a charity lump sum death benefit,
- a trivial commutation lump sum death benefit,
- where the lump sum is paid in respect of rights that were crystallised before 6 April 2024.
Whenever an RBCE occurs, this is tested against the member's remaining LSDBA, and if it uses up the remaining LSDBA, the excess is subject to an income tax charge.
Example 1:
Maxine had an RBCE on 3 May 2024 – she received a PCLS of £80.000. She’s had no other RBCEs and hadn’t taken any benefits before 6 April 2024. She has no protections.
Her available LSDBA is therefore £1,073,100 at the RBCE. When the PCLS is paid, her LSDBA is reduced by the monetary amount of the tax-free element of the RBCE i.e. £80,000.
Her remaining LSDBA after the RBCE will be £1,073,100 - £80,000 = £993,100
Example 2:
Gregor took an UFPLS on 1 June 2024. He accessed PCLS from another scheme on 1 May 2024 and used up £65,000 of his LSDBA, so has £1,008,100 left.
The tax-free element of his UFPLS is £24,000, so on this second RBCE, his LSDBA is further reduced, leaving him with £984,100.
Note – Gregor had no BCEs pre-6 April 2024 and no protections.
If a member has multiple RBCEs occurring on the same day they will need to specify the order in which they happen so the remaining LSA can be assessed. The member will need to consider this if the LSA is likely to be exceeded as this order will determine which RBCE will give rise to the income tax charge.
Example 1
Callum has two relevant benefit crystallisation events occurring on the same day:
1. a pension commencement lump sum (PCLS) of £30,000 and
2. an uncrystallised funds pension lump sum (UFPLS) of £20,000
Callum’s available lump sum allowance is £268,275.
Callum decides that the uncrystallised funds lump sum payment of £20,000 occurs first. So what steps need to be taken?
Firstly, the tax-free element of the UFPLS needs to be deducted from his lump sum allowance:
25% of £20,000 = £5,000
£268,275 - £5,000 = £263,275
Callum’s available lump sum allowance following the deduction of the tax-free element of the UFPLS is £263,275.
Secondly, the PCLS of £30,000 needs to be deducted from Callum’s lump sum allowance.
£263,275 - £30,000 = £233,275
Callum’s remaining lump sum allowance is £233,275.
Example 2
Mary has a LSA of £85,000 and a LSDBA of £340,000 remaining once her previous BCEs and RBCEs are accounted for. She is crystallising her remaining pension savings which are in two schemes, on the same day, as follows:
- Scheme A: PCLS of £60,000 and flexi-access drawdown with the remaining £180,000.
- Scheme B: PCLS of £50,000 and flexi-access drawdown with the remaining £150,000.
She decides the order of the RBCEs should be scheme A first, then scheme B.
The LSA used by scheme A is £60,000. Mary’s remaining LSA reduces to £25,000. This means that when scheme B does their RBCE, Mary doesn’t have enough LSA left to cover the full amount of PCLS available. The excess can be paid as a lump sum, but it will be taxable. So the order of the RBCEs chosen by Mary determines which scheme must:
- deal with the taxable portion of the lump sum that exceeds the remaining LSA, and
- the reporting requirements.
The same process applies to the LSDBA, during the member's lifetime. However, where a member has died and more than one RBCE is being paid on the same day, they are to be treated as occurring:
- Immediately before the member’s death,
- Immediately after any PCLS to which the member becomes entitled to immediately before death, and
- In an order which may be decided by the member's personal representative.