Testing growth in multiple drawdown accounts at second LTA test at 75

caveman8006

I have 2 separate DC SIPPs which I have recently fully crystallised. The BCE certificate for the first clearly lists the pre-crystallisation sum, the amount designated to Income Drawdown (BCE1) and the amount paid as the PCLS (BCE6). They clearly add up to the pre-crystallisation figure which, in turn, correctly identifies the % of LTA used up. Unfortunately, the BCE certificate for the second only records the pre-crystallisation sum and the % of LTA used up. Although this is correct, it fails to specify the sum taken into drawdown or the sum paid out as a PCLS. There is therefore no way to ascertain that the Income Drawdown account (BCE1) is more than 75% of the total sum crystallised (as I deliberately took less than the maximum 25% available as the PCLS (BCE6)). How will this certificate allow the correct BCE5 test to be carried out at age 75, when it may not be clear what the starting value of the drawdown account was in order to calculate the net growth which needs to be tested against the remaining LTA allowance? Am I right in thinking that this second BCE certificate is inadequate and needs to be amended to give the fuller information shown in the first example? How would I insist on my SIPP provider doing this?

Can I also ask what happens at the age 75 (BCE5) test if the value of one of the drawdown accounts has gone up and one has gone down...? If, for instance, one drawdown account has increased by a net £20,000 and the other has decreased by a net £10,000 is the overall net increase tested against the remaining LTA available £20,000 or £10,000? In other words is my drawdown account measured as an aggregate amount or are the components assessed separately (I believe the HMRC Tax manual is silent on this). What would happen if I merged the 2 drawdown accounts with one administrator before turning 75?

cfw1994

caveman8006 wrote: »

I have 2 separate DC SIPPs which I have recently fully crystallised. The BCE certificate for the first clearly lists the pre-crystallisation sum, the amount designated to Income Drawdown (BCE1) and the amount paid as the PCLS (BCE6). They clearly add up to the pre-crystallisation figure which, in turn, correctly identifies the % of LTA used up. Unfortunately, the BCE certificate for the second only records the pre-crystallisation sum and the % of LTA used up. Although this is correct, it fails to specify the sum taken into drawdown or the sum paid out as a PCLS. There is therefore no way to ascertain that the Income Drawdown account (BCE1) is more than 75% of the total sum crystallised (as I deliberately took less than the maximum 25% available as the PCLS (BCE6)). How will this certificate allow the correct BCE5 test to be carried out at age 75, when it may not be clear what the starting value of the drawdown account was in order to calculate the net growth which needs to be tested against the remaining LTA allowance? Am I right in thinking that this second BCE certificate is inadequate and needs to be amended to give the fuller information shown in the first example? How would I insist on my SIPP provider doing this?

Can I also ask what happens at the age 75 (BCE5) test if the value of one of the drawdown accounts has gone up and one has gone down...? If, for instance, one drawdown account has increased by a net £20,000 and the other has decreased by a net £10,000 is the overall net increase tested against the remaining LTA available £20,000 or £10,000? In other words is my drawdown account measured as an aggregate amount or are the components assessed separately (I believe the HMRC Tax manual is silent on this). What would happen if I merged the 2 drawdown accounts with one administrator before turning 75?

No expert here, but on that first bold point: I have taken some PCLS on my main Aviva account, and the certificate only shows the “Percentage of the Standard Lifetime Allowance used by this event”, not the actual sums used.
Within the funds, the remaining 75% of that specific crystallised amount now shows as “in drawdown”.....the rest of the pot is there to be taken later. The fact that I did not take the entire 25% PCLS just means there is some to take later.

I would think HMRC will only be interested once the % used goes over the 100% mark, surely?

Second part: I don’t know: I would not expect the part that dropped £10k in your example to effectively lower the other account, but honestly, I don’t know.
FWIW, in my case I would be aiming to take those gains during the years between now and 75 to avoid that being an issue, but of course that is many years away...

Brynsam

Have you checked with your SIPP provider? If the provider can't help, try TPAS: https://www.pensionsadvisoryservice.org.uk

eumaeus

caveman8006 wrote: »

... Although this is correct, it fails to specify the sum taken into drawdown or the sum paid out as a PCLS. There is therefore no way to ascertain that the Income Drawdown account (BCE1) is more than 75% of the total sum crystallised (as I deliberately took less than the maximum 25% available as the PCLS (BCE6)).

I feel your pain here. I went through a similar exercise a year ago, although I was able to solve it by sifting through the paper records. The whole BCE 5 thing is a nightmare.

On your second point about the netting effect, that's interesting. On the principle that BCE5 tests against the total gain in all accounts, you would think that you would be allowed to net the loss against the gain. Have you tried writing to one of the accounting firms who regularly publish advice on such subjects, in the hope that they could raise it with HMRC? They will have a line to the taxman which we ordinary people don't.

caveman8006

I contacted the HMRC helpline and they didn't seem to know the answer - they just pointed me to the section in the tax manual

While the question is not answered directly in the Pension Tax Manual, I believe the guidance here helps to clarify: -

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm088650#IDADZNKB

To quote: - It can be seen therefore that BCE 5A merely performs the same function of a further lifetime allowance test as occurs when a lifetime annuity or a scheme pension arises from a drawdown pension fund or flexi-access drawdown fund. And the prevention of overlap rules apply to ensure that it is only net growth (investment growth less payments of income made) in the drawdown pension fund or flexi-access drawdown fund remaining since the original designation(s) that is tested.

Therefore, If at age 75 the amount in the drawdown fund has decreased since it was originally tested, it will not be subject to a test by the Scheme Administrator. So in answer to your question, it appears that the reduction in one pension would not be used to offset another pension schemes growth. The Pensions are viewed separately.

Please note that our role at Pension Scheme Services is to direct Customers to the relevant guidance. It is not our role to provide “rulings” etc. Ultimately it is the Scheme Administrator who completes the BCE testing (as they have a better idea of your Pensions / financial circumstances).

I would therefore suggest that you discuss this guidance with the Scheme Administrator or seek financial advice .

I still don't think this is definitive, so am pressing the HMRC pension schemes help desk to give a ruling. My riposte to the above interpretation is: what would the administrator do if the pots were combined before age 75?

caveman8006

cfw1994 wrote: »

No expert here, but on that first bold point: I have taken some PCLS on my main Aviva account, and the certificate only shows the “Percentage of the Standard Lifetime Allowance used by this event”, not the actual sums used..

Sounds like Aviva are just as "non compliant" as Investacc on this. I think the guidance in the HMRC manual is fairly clear that the amounts of each overall crystallization event which involve moving funds into designated income drawdown (a BCE1) and paying a PCLS (a BCE6) should be listed separately so that there is adequate information in the Certificate for a BCE5a calculation to be done at age 75. (NB the claim by the Administrator that the underlying split is shown internally on their systems would be of no use if the drawdown fund was subsequently transferred to another manager without any record of what the starting value was at the time of crystallization!). I note that AJ Bell produce a much more comprehensive BCE crystallization record which contains the full split of each component BCE as well as the relevant fixed protection LTA that they were tested against.

cfw1994

caveman8006 wrote: »

Sounds like Aviva are just as "non compliant" as Investacc on this. I think the guidance in the HMRC manual is fairly clear that the amounts of each overall crystallization event which involve moving funds into designated income drawdown (a BCE1) and paying a PCLS (a BCE6) should be listed separately so that there is adequate information in the Certificate for a BCE5a calculation to be done at age 75. (NB the claim by the Administrator that the underlying split is shown internally on their systems would be of no use if the drawdown fund was subsequently transferred to another manager without any record of what the starting value was at the time of crystallization!). I note that AJ Bell produce a much more comprehensive BCE crystallization record which contains the full split of each component BCE as well as the relevant fixed protection LTA that they were tested against.

That is a good point - there is nowhere on that LTA certificate to tell me the value of the amount in drawdown....& thus no way to know what any growth by age 75 may have taken place.
Hmmm.
Methinks I may pen them an note ;-)

jamesd

I think losses in one reducing the gain in another[STRIKE] makes sense but it may be tricky to get it done and I might be wrong.[/STRIKE] is prohibited, see later posts.

Avoid the situation. You get to choose which one you withdraw from so use that control.

I'm not sure it's possible to merge two crystallised pots once created with different administrators. [STRIKE]I think not.[/STRIKE]

ffacoffipawb

jamesd wrote: »

I think losses in one reducing the gain in another makes sense but it may be tricky to get it done and I might be wrong.

Avoid the situation. You get to choose which one you withdraw from so use that control.

I'm not sure it's possible to merge two crystallised pots once created with different administrators. I think not.

Crystallised pots can be transferred and, by corollary, merged.

caveman8006

ffacoffipawb wrote: »

Crystallised pots can be transferred and, by corollary, merged.

Interestingly, AJ Bell seemed to imply that they would be able to merge two crystallized pots and compare the combined sum at 75 with the sum of the initial pots, but Investacc claim that you have to treat both pots separately when testing at 75 even if they have subsequently been brought together under one umbrella...

jamesd

ffacoffipawb wrote: »

Crystallised pots can be transferred and, by corollary, merged.

They could and can be transferred but merging crystallised pots used to be prohibited. I don't know if it still is.