Benefit crystallisation events and the lifetime allowance charge

The lifetime allowance is the maximum amount that can be crystallised before a charge applies. It is currently £1,073,100.
Key facts

Pension benefits held in a registered pension scheme will be tested against the lifetime allowance when:

  • the individual chooses to take them
  • on their death
  • at age 75
  • on transfer overseas

There are a number of benefit crystallisation events, each one triggers a test against the lifetime allowance. We’ll cover the more frequent benefit crystallisation events we receive queries on.

Some common events

Taking benefits

Every time someone takes benefits, the crystallised value is tested against the lifetime allowance. The crystallised value for a defined contribution scheme is the amount of the fund taken, for a defined benefit scheme it’s 20 x the pension taken plus the tax-free cash.

HMRC Pensions Tax Manual – PTM088100: Benefit crystallisation events overview

Karen’s story

Take Karen, who took benefits with a value of £125,000 in 2015 when the lifetime allowance was £1.25 million. The scheme administrator asks her if she has used up any lifetime allowance already and issues her with a statement stating that she’s used up 10% of the lifetime allowance with this crystallisation.

If she crystallises more funds, she’ll be able to tell the scheme administrator she’s already used up 10% of the lifetime allowance. If her next crystallisation uses up another 20% of the lifetime allowance she’s now used up a total of 30% and will have 70% left to apply to her next benefit crystallisation event. The 70% will be applied to the lifetime allowance in force at the time of that benefit crystallisation event.

If she crystallises an amount that’s more than the lifetime allowance she has left, the scheme administrator will ask her whether she wants to take the excess as a lump sum or use it to provide income. Not all scheme administrators will offer both options.

If she chooses a lump sum, a charge of 55% of the amount over the available lifetime allowance will be deducted by the scheme administrator and paid to HMRC with the balance paid to Karen. This can be paid on top of the tax-free cash taken but remember that tax-free cash is restricted to the lower of 25% of the fund and 25% of the lifetime allowance that’s left.

If she chooses income, the charge will be 25% of the amount over the available lifetime allowance with the balance used to provide an annuity or be designated to provide a drawdown income.

You can find more information and examples in our article lifetime allowance charge.

HMRC Pensions Tax Manual – PTM083000: The lifetime allowance charge overview

Reaching age 75

Some other benefit crystallisation events happen automatically at age 75. These are:

Benefit crystallisation event 5 – where someone reaches age 75 without having taken all or only part of their defined benefit scheme benefits.

The defined benefit pension is valued at 20 x the full pension they would have received if they had taken benefits at age 75. The pension used is the pension before any commutation for tax-free cash. However, if tax-free cash is provided separately (as is common in public sector schemes), it will be added in as a lump sum. The total amount is tested against the lifetime allowance available.

HMRC Pensions Tax Manual – PTM088650: BCE 5: Age 75 without taking all entitlements under a defined benefits arrangement

Benefit crystallisation event 5A – where someone reaches age 75 having already started drawdown

This benefit crystallisation event is triggered if there are still drawdown benefits to be paid out. The amount tested is the difference between the value of the fund at age 75 less the amount originally crystallised.

Obviously making withdrawals from the drawdown fund will result in a lower level of growth or no growth at all. However, the withdrawals themselves will be liable for income tax, possibly at a 40% or even 45% rate.

HMRC Pensions Tax Manual – PTM088650: BCE 5A – Where someone reaches age 75 having already started drawdown

Benefit crystallisation event 5B: age 75 money purchase arrangement without any or only some funds designated as drawdown pension 

The uncrystallised fund is then tested against the remaining lifetime allowance available.

HMRC Pensions Tax Manual – PTM088650: BCE 5B – Where someone reaches age 75 without having taken benefits yet from a defined contribution scheme

Alan’s story 

Alan crystallised his £200,000 pension fund on 1 October 2007, taking £50,000 tax-free cash with the balance of £150,000 going into drawdown. This used up 12.5% of the 2007/08 lifetime allowance of £1.6 million. On 1 October 2017 (his 75th birthday), the drawdown fund is worth £220,000. The £70,000 growth in the fund is tested against £875,000, which is 87.5% of the lifetime allowance in 2017/18, so no lifetime allowance charge is due.

What happens after age 75?

After age 75 the only benefit crystallisation event that can happen is where an annuity increases by more than a prescribed amount. This would be a rare occurrence, so for all practical purposes no benefit crystallisation event can happen after age 75.

HMRC Pensions Tax Manual – PTM088630: BCE 3 - Increase to a scheme pension in payment


Death is also a benefit crystallisation event so there’s no escaping a lifetime allowance test – an individual’s pension rights will be tested at some point. But a lifetime allowance charge will only apply if the benefit crystallisation event value is wholly or partly over the lifetime allowance available.

HMRC Pensions Tax Manual – PTM088660: BCE 5C and BCE 5D relevant unused uncrystallised funds applied for drawdown or annuity following a death


The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.

All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.

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The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.