Lifetime allowance limbo

In its April pension scheme newsletter, HMRC confirmed that the Government planned to introduce the necessary regulations to correct the technical errors in the legislation that abolished the lifetime allowance. 

When the lifetime allowance was removed back at the start of the new tax year, the rules on testing pension benefits were not quite finalised. When the legislation was eventually published it didn’t meet the policy intent in all instances and a number of the published calculations resulted in outcomes where individuals would have received higher tax free payments than intended at retirement. 

For personal representatives the calculations resulted in a lower tax free amount being calculated for beneficiaries receiving lump sum payments. 

HMRC was forced to recommend that some people delay retirement where possible until the issues were resolved.

Who is affected?

• Individuals with scheme specific tax free cash entitlements
• Individuals with enhanced lifetime allowance protection
• Personal representatives (PRs) of deceased members where certain death benefit lump sums are to be paid
• Some members wishing to transfer overseas to a ‘qualifying recognised overseas pension scheme’ QROPS

The new Labour government has announced plans to go ahead and rectify the necessary regulations as soon as the parliamentary timetable allows after the summer recess. 

A short technical consultation was held, ending on 14 August, and although there is no date for the introduction yet, the updates will be retrospective and apply from 6th April 2024. 

If any of your clients have been affected by the delays and would benefit from advice in this area, please get in touch with your TPO Adviser. 

Read our related articles about the lifetime allowance and the new allowances introduced at the start of the tax year:

• The Pension Lifetime Allowance
• What is the Lump Sum Allowance?
• What is the Lump Sum and Death Benefit Allowance?
• What is a Transitional Tax Free Amount Certificate?

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. 

Pensions are a long term investment and any income derived from them is not guaranteed, the value of these investments can go down as well as up and you may not get back what you originally invested. The Financial Conduct Authority (FCA) does not regulate tax advice. 

The information in this article is correct as at 20/08/24.

Sources:

• https://www.gov.uk/government/publications/pensions-schemes-newsletter-158-april-2024
• https://www.gov.uk/government/publications/pensions-schemes-newsletter-161-august-2024/362eb1df-4e6d-4b2c-83fb-b29bc6314967