Bridging Pension & LTA

Hi,

We have a client with a lifetime allowance issue who has been offered a bridging pension with their scheme pension and I was hoping for some clarification that I am on the right tracks:

  • Obviously taking the bridging pension utilises a higher proportion of their LTA- scheme pays for the LTA charge can only be used on the non GMP portion, correct?
  • If he does not take the bridging pension and the GMP becomes payable at 65 then this would be further tested against the LTA under BCE 3 for increases to pension in payment, correct? Again scheme pays could not be used as it is GMP

Is there anything else I am missing? This is part of a broader income strategy with client having money purchase funds too and other factors eg IHT planning etc all being discussed.

Thanks

Comments

  • In case anyone is interested, the conclusion after discussing with tech advice is that the GMP would not be tested again at 65 as it is not being offered to a group of Scheme members eg increase in payment of 10% across the board, rather it’s member specific and at a specific date for him.

    Whether the GMP could be commuted to pay an LTA charge is debatable, lots of discussion around this apparently where legal advice would be required.

    It’s a moot point anyway as he has decided to take his money purchase later which will take the LTA hit rather than the scheme now.

  • Hi,

    Thanks for posting the outcome. I don't know about the scheme pays option where the new benefit is GMP. But, on the BCE3, I'm sure an increase because of a GMP step up would be assessed against LTA at age 65.

    Benjamin Fabi 
  • Hi Benjamin,

    That’s what I thought too but our compliance tech support said no about BCE3 and GMP step up, it’s referenced in the HMRC specifically as an exception.
  • Taken from https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm088630

    But any pension increase which is in some way personalised for the individual, for example it occurs on a birthday of the member, is unlikely to meet the conditions in the second paragraph of this page unless similar increases are also being applied and at the same time for a sufficient number of people. It is therefore likely to be the case that an increase to a pension resulting from a revaluation of contracting-out rights, such as a ‘step-up’ for GMP, based on the particular circumstances of a single member, will not meet the conditions.

    Benjamin Fabi 
  • JonaJona Member

    Does this not state otherwise?
    https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm088630#IDAQR5IB

    But any pension increase which is in some way personalised for the individual, for example it occurs on a birthday of the member, is unlikely to meet the conditions in the second paragraph of this page unless similar increases are also being applied and at the same time for a sufficient number of people. It is therefore likely to be the case that an increase to a pension resulting from a revaluation of contracting-out rights, such as a ‘step-up’ for GMP, based on the particular circumstances of a single member, will not meet the conditions.

  • Hmm now doubting the compliance response! Off now til Monday so will review client file and response then.
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