Age 75 and the Lifetime Allowance

5 April 2022

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When it comes to pensions, reaching age 75 is an important milestone and for many this is a vital time for financial advice. It’s therefore important to plan for this event in advance.  This is due to the changes in tax relief and the taxation of death benefits after age 75 as well as the potential LTA tax charge which could apply at age 75.

Here, Fiona Hanrahan, Intermediary Development and Technical Manager at Royal London, addresses the issues in more detail.

There are three lifetime allowance checks or Benefit Crystallisation Events (BCEs) which can occur at age 75.  These are BCE 5, BCE 5A and BCE 5B. In this article I’ll focus on BCE 5A as this is the one our pensions technical area receives the most queries about.


This occurs when a client reaches age 75 with benefits in drawdown.  The amount tested against the remaining lifetime allowance is the growth in the drawdown fund from the date it went into drawdown and the client reaching age 75.  The amount tested will depend on investment growth and the level of withdrawals.

You could argue this tax charge is optional as, if a client withdraws the growth from the funds, there will be no charge as there will be no growth at age 75 to charge.  The decision on whether to leave funds in a drawdown fund or withdraw the growth prior to age 75 depends largely on the client’s circumstances.  If the client has a need for the income then the decision is clear but if the client doesn’t have a need for the income then the decision is less clear cut.  The pros and cons of taking the income and therefore paying the income tax versus leaving it invested to receive fund growth and potentially paying a LTA tax charge should be considered.  This decision should include the need for income, the inheritance tax situation,  the tax status of any beneficiaries and if gifting excess income is a consideration.

Case study

Let’s have a think about this using a case study – meet Alice.

When Alice was 65 she retired and took the maximum PCLS from her personal pension fund of £980,000 (25% PCLS of £245,000) and moved the rest of the fund into drawdown.  This used up 91.32% of Alice’s LTA at the time.  She did not have any other pension benefits and she has no lifetime allowance protection.  Since retiring she has taken withdrawals of 4% per year.

When Alice reaches age 75, this will trigger BCE 5A.  Any growth on her fund in drawdown will be tested against her remaining LTA and a lifetime allowance charge of 25% on any growth would be due.  The calculation would be as follows:

Assumed Lifetime allowance at age 75 = £1,184,789

Fund at the time of going into drawdown = £735,000

Remaining LTA = 8.68%

Fund at age 75 = £850,000

Chargeable amount = £115,000 – (0.0868 x £1,184,789) = £12,160

Charge due = 25% of £12,160 = £3,040

The provider will deduct this charge from Alice’s fund and pass the charge to HMRC.

Although Alice was taking regular withdrawals from her fund, her fund growth exceeds these withdrawals meaning there is a LTA tax charge due.  She could have taken higher withdrawals which would have faced income tax but would have meant no LTA charge is due at age 75. Alice will face no further BCEs after age 75.

If Alice does not need this money and IHT is a concern, she could make gifts of cash to her child or grandchild. These could be exempt from IHT provided she has remaining IHT exemptions or be potentially exempt transfers or PETs which would mean they would be exempt from IHT if she survived for 7 years after making the gift.

Another option would be to make third party pension payments for her child or grandchild.  The net contribution would be a PET or exempt depending on Alice’s available IHT exemptions. Alice could increase her withdrawals from drawdown to cover these payments. The recipient would benefit from the pension contribution as well tax relief and as pensions act as a tax reducer, they could also benefit from a reduction in tax.  This would be particularly useful for those in either the child benefit tax trap or the personal allowance tax trap.

Where can you get more information?

As I said at the start of the article, reaching age 75 is an important milestone and for many this is a vital time for financial advice. But often planning needs to start in the years before age 75 and it might not just be about the client but the wider family. I hope this article helps you plan for BCA 5A in advance to make the most of the client’s situation and reduce the impact of the tax charge which could apply at 75.

Our Technical Central site has lots of information on the BCEs I’ve talked about in this article as well as the other BCEs and the LTA in general. 

Professional Paraplanner