What details should be sent when a BCE occurs?

Notepad_Phil

Over the last few years I've received various PCLS payments from my DC pensions and have noticed differing amounts of information sent about the event.

A couple of pension companies sent fairly quickly after the PCLS event 3 lots of information regarding the tax free amount paid, the LTA percentage used and the size of the drawdown pot created, however one of my others only sent a letter saying that a payment had been paid to my bank account and nothing else. It's only now (a year after the PCLS) that they have actually told me in a yearly pension statement how much LTA in total my PCLS requests have resulted in, but again nothing about the size of the original drawdown pot. Is there a minimum amount of information that should be sent when a PCLS happens or is it just left to the company themselves to decide what to send out?

The reason for my querying this is that I've started thinking about the LTA checks at 75 (though it is nearly 2 decades away) and the effect of how much income I drawdown will have when the growth of the drawdown pot is checked when I (hopefully) get to 75. I know that in this case I can work out the drawdown pot by multiplying the tax-free lump sums * 3, but one of my other pensions had a protected higher percentage that I could take as a PCLS and if that had been the case for this pension then my calculation of the drawdown pot would be wrong and so I started to wonder about what information should have been sent by the pension company in the first place.

Thanks.

EdSwippet

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm164400

cfw1994

So the minimum you should get would be the percentage of the standard lifetime allowance used up.
If they haven't sent you that, I think I'd get on to them and ask.....

Notepad_Phil

EdSwippet said:

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm164400

Thanks for the link, unfortunately however I'm still unclear on what should be sent for my case where I take a PCLS and put the rest of the funds into drawdown - which I thought were BCE 6 for the lump sum and BCE 1 for designating funds for drawdown.

The page doesn't mention the need to show how much monetary value was put into drawdown e.g. £75000, but does say "Whenever a benefit crystallisation event (BCE) occurs the member must be given a statement telling them how much lifetime allowance has been used up by the BCE".

So to me that means that I should have been sent details of the lifetime allowance used for both the BCE 6 for taking the lump sum and a separate entry for the BCE 1 for designating funds for drawdown. Which is not what has happened on any of the BCE statements that I've received, they all total up the percentages and just show that e.g. 10% instead of 2.5% for BCE 6 and 7.5% for BCE 1 or in the case of one of mine 3.5% for BCE 6 and 6.5% for BCE 1 as I had a higher protected tax-free lump sum available to me.

cfw1994 said:

So the minimum you should get would be the percentage of the standard lifetime allowance used up.
If they haven't sent you that, I think I'd get on to them and ask.....

Is that for each separate event or do you mean a combined percentage - as it is the combined percentage that I seem to have received?

If you did mean a combined percentage then if someone took a PCLS at something other than 25% then how does that person calculate what their initial pot was worth when it comes to doing the age 75 calculations i.e. to see how much their drawdown pot has increased in value since going into drawdown. e.g. in my case I was allowed to take more than 25% tax-free, so it was more like 3.5% for the PCLS and 6.5% for the drawdown, thus my drawdown pot is actually smaller than it might seem if someone just knew that the LTA for the combined events was 10%.

This isn't a problem for me, as I know the actual figures, but I can see that other people could get the calculations wrong with potentially damaging consequences e.g. they reckon they pass the age 75 tests because they thought the initial drawdown pot was bigger than it actually was, but they haven't and get caught out and fined.

zagfles

Notepad_Phil said:

EdSwippet said:

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm164400

Thanks for the link, unfortunately however I'm still unclear on what should be sent for my case where I take a PCLS and put the rest of the funds into drawdown - which I thought were BCE 6 for the lump sum and BCE 1 for designating funds for drawdown.

The page doesn't mention the need to show how much monetary value was put into drawdown e.g. £75000, but does say "Whenever a benefit crystallisation event (BCE) occurs the member must be given a statement telling them how much lifetime allowance has been used up by the BCE".

So to me that means that I should have been sent details of the lifetime allowance used for both the BCE 6 for taking the lump sum and a separate entry for the BCE 1 for designating funds for drawdown. Which is not what has happened on any of the BCE statements that I've received, they all total up the percentages and just show that e.g. 10% instead of 2.5% for BCE 6 and 7.5% for BCE 1 or in the case of one of mine 3.5% for BCE 6 and 6.5% for BCE 1 as I had a higher protected tax-free lump sum available to me.

cfw1994 said:

So the minimum you should get would be the percentage of the standard lifetime allowance used up.
If they haven't sent you that, I think I'd get on to them and ask.....

Is that for each separate event or do you mean a combined percentage - as it is the combined percentage that I seem to have received?

If you did mean a combined percentage then if someone took a PCLS at something other than 25% then how does that person calculate what their initial pot was worth when it comes to doing the age 75 calculations i.e. to see how much their drawdown pot has increased in value since going into drawdown. e.g. in my case I was allowed to take more than 25% tax-free, so it was more like 3.5% for the PCLS and 6.5% for the drawdown, thus my drawdown pot is actually smaller than it might seem if someone just knew that the LTA for the combined events was 10%.

This isn't a problem for me, as I know the actual figures, but I can see that other people could get the calculations wrong with potentially damaging consequences e.g. they reckon they pass the age 75 tests because they thought the initial drawdown pot was bigger than it actually was, but they haven't and get caught out and fined.

My understanding of that page (I have no practical experience) is that if they have to provide an annual statement, which they do if you've put funds into drawdown, then they just need to give you the total BCE for the tax year annually. Some pensions will crystallise every month and pay 25% tax free, 75% taxable, so 24 BCEs per year! 

cfw1994

zagfles said:

Notepad_Phil said:

EdSwippet said:

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm164400

Thanks for the link, unfortunately however I'm still unclear on what should be sent for my case where I take a PCLS and put the rest of the funds into drawdown - which I thought were BCE 6 for the lump sum and BCE 1 for designating funds for drawdown.

The page doesn't mention the need to show how much monetary value was put into drawdown e.g. £75000, but does say "Whenever a benefit crystallisation event (BCE) occurs the member must be given a statement telling them how much lifetime allowance has been used up by the BCE".

So to me that means that I should have been sent details of the lifetime allowance used for both the BCE 6 for taking the lump sum and a separate entry for the BCE 1 for designating funds for drawdown. Which is not what has happened on any of the BCE statements that I've received, they all total up the percentages and just show that e.g. 10% instead of 2.5% for BCE 6 and 7.5% for BCE 1 or in the case of one of mine 3.5% for BCE 6 and 6.5% for BCE 1 as I had a higher protected tax-free lump sum available to me.

cfw1994 said:

So the minimum you should get would be the percentage of the standard lifetime allowance used up.
If they haven't sent you that, I think I'd get on to them and ask.....

Is that for each separate event or do you mean a combined percentage - as it is the combined percentage that I seem to have received?

If you did mean a combined percentage then if someone took a PCLS at something other than 25% then how does that person calculate what their initial pot was worth when it comes to doing the age 75 calculations i.e. to see how much their drawdown pot has increased in value since going into drawdown. e.g. in my case I was allowed to take more than 25% tax-free, so it was more like 3.5% for the PCLS and 6.5% for the drawdown, thus my drawdown pot is actually smaller than it might seem if someone just knew that the LTA for the combined events was 10%.

This isn't a problem for me, as I know the actual figures, but I can see that other people could get the calculations wrong with potentially damaging consequences e.g. they reckon they pass the age 75 tests because they thought the initial drawdown pot was bigger than it actually was, but they haven't and get caught out and fined.

My understanding of that page (I have no practical experience) is that if they have to provide an annual statement, which they do if you've put funds into drawdown, then they just need to give you the total BCE for the tax year annually. Some pensions will crystallise every month and pay 25% tax free, 75% taxable, so 24 BCEs per year! 

Which would make sense, since the LTA amount is set for the year, so really all you need are that you used X% for 2019-20, etc.

Notepad_Phil

cfw1994 said:

zagfles said:

Notepad_Phil said:

EdSwippet said:

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm164400

Thanks for the link, unfortunately however I'm still unclear on what should be sent for my case where I take a PCLS and put the rest of the funds into drawdown - which I thought were BCE 6 for the lump sum and BCE 1 for designating funds for drawdown.

The page doesn't mention the need to show how much monetary value was put into drawdown e.g. £75000, but does say "Whenever a benefit crystallisation event (BCE) occurs the member must be given a statement telling them how much lifetime allowance has been used up by the BCE".

So to me that means that I should have been sent details of the lifetime allowance used for both the BCE 6 for taking the lump sum and a separate entry for the BCE 1 for designating funds for drawdown. Which is not what has happened on any of the BCE statements that I've received, they all total up the percentages and just show that e.g. 10% instead of 2.5% for BCE 6 and 7.5% for BCE 1 or in the case of one of mine 3.5% for BCE 6 and 6.5% for BCE 1 as I had a higher protected tax-free lump sum available to me.

cfw1994 said:

So the minimum you should get would be the percentage of the standard lifetime allowance used up.
If they haven't sent you that, I think I'd get on to them and ask.....

Is that for each separate event or do you mean a combined percentage - as it is the combined percentage that I seem to have received?

If you did mean a combined percentage then if someone took a PCLS at something other than 25% then how does that person calculate what their initial pot was worth when it comes to doing the age 75 calculations i.e. to see how much their drawdown pot has increased in value since going into drawdown. e.g. in my case I was allowed to take more than 25% tax-free, so it was more like 3.5% for the PCLS and 6.5% for the drawdown, thus my drawdown pot is actually smaller than it might seem if someone just knew that the LTA for the combined events was 10%.

This isn't a problem for me, as I know the actual figures, but I can see that other people could get the calculations wrong with potentially damaging consequences e.g. they reckon they pass the age 75 tests because they thought the initial drawdown pot was bigger than it actually was, but they haven't and get caught out and fined.

My understanding of that page (I have no practical experience) is that if they have to provide an annual statement, which they do if you've put funds into drawdown, then they just need to give you the total BCE for the tax year annually. Some pensions will crystallise every month and pay 25% tax free, 75% taxable, so 24 BCEs per year! 

Which would make sense, since the LTA amount is set for the year, so really all you need are that you used X% for 2019-20, etc.

But don't forget that at age 75 (assuming your drawdown fund is still going) you also need to test for the increase in the value of the drawdown fund since BCE 1 and you could get hit by an LTA charge if that increase has taken you over the LTA.

If all that you know is that you used 10% in 2020 (say), then how do you know how much of that 10% was for the PCLS and how much for the putting the money into the drawdown fund? It won't always be 25% of X% as it is possible to take more than or less than 25% as a PCLS.

It might well be that HMRC don't really think people will attempt to work out these calculations for themselves or are relying on people to remember if their lump sums were anything other than 25% and so are quite happy for pension companies to just send out the total percentage for the year,  it just seems a bit odd to me - but then there are so many odd things about some of the things the HMRC do!

caveman8006

https://forums.moneysavingexpert.com/discussion/6079468/testing-growth-in-multiple-drawdown-accounts-at-second-lta-test-at-75
This link has some useful points on this subject: it is important that your BCE statement shows the amount placed into drawdown as well as the % of LTA used or you may be over-taxed when the test on growth at 75 is done

Notepad_Phil

caveman8006 said:

https://forums.moneysavingexpert.com/discussion/6079468/testing-growth-in-multiple-drawdown-accounts-at-second-lta-test-at-75
This link has some useful points on this subject: it is important that your BCE statement shows the amount placed into drawdown as well as the % of LTA used or you may be over-taxed when the test on growth at 75 is done

It does sound as though there is little consistency on what information is sent out - I do hope that the scheme administrators are making sure that they keep all of the relevant information and pass it over when pensions in drawdown get transferred to other platforms.

cfw1994

Notepad_Phil said:

caveman8006 said:

https://forums.moneysavingexpert.com/discussion/6079468/testing-growth-in-multiple-drawdown-accounts-at-second-lta-test-at-75
This link has some useful points on this subject: it is important that your BCE statement shows the amount placed into drawdown as well as the % of LTA used or you may be over-taxed when the test on growth at 75 is done

It does sound as though there is little consistency on what information is sent out - I do hope that the scheme administrators are making sure that they keep all of the relevant information and pass it over when pensions in drawdown get transferred to other platforms.

Yeah, very good point about the second test - you do need to (I guess!) be able to evidence the growth in the crystallised portions.
& sure enough, my LTA *certificates* for some TFLS activity (from Aviva) *only* show the % used.
Maybe IF I moved the drawdown amount to another provider, THEN they would supply the growth number to them (& me?), as you say.....
Who knows!
I do keep specific numbers myself, so I know where things stand.....trust me, guv'na (or HMRC) 

garmeg

A J Bell give you a certificate and at the bottom it tells you the starting income drawdown fund, like in the following anonymised example ...

Compare the drawdown fund value at 75 with this starting fund to see if any more LTA has been used.