pensions lifetime allowance

The charge on high-value pensions, known as the lifetime allowance charge, ceased to be enforced as of April 6, 2023. However, the legislation to officially eliminate this charge (cl14, Sch. 9, Finance Bill 2023-24) will come into effect on April 6, 2024.

This legislation introduces new terminology and calculations to determine the portion of a pension that can be accessed without tax implications. HMRC’s latest newsletter regarding the lifetime allowance provides additional details for both taxpayers and scheme administrators.

Addressing Frequently Asked Questions (FAQs) on the Pensions Lifetime Allowance, HMRC responds to several key topics in the newsletter:

  1. Lump sums and lump sum death benefits.
  2. Reporting requirements for pension scheme administrators.
  3. The overseas transfer allowance.
  4. Interactions with protections and enhancement factors.
  5. Transitional arrangements for individuals who have crystallized benefits but have utilized less than 25% of their lifetime allowance as a tax-free amount.

Transitional Tax-Free Amount Certificates:

The newsletter also outlines the process for obtaining a transitional tax-free amount certificate. HMRC suggests that most individuals accessing their pensions won’t need this certificate, as they will be handled using the standard calculation outlined in the legislation. However, the certificate becomes relevant if an individual has already accessed their pension pot and used less than the available lifetime allowance as tax-free lump sums compared to the standard calculation.

To obtain this certificate, an individual member of a pension scheme must provide evidence of tax-free lump sums already withdrawn from their pension scheme, along with other necessary information. Once issued, the certificate prevents the individual from reverting to the standard calculation.

Legislative Changes:

HMRC plans to make amendments to the legislation outlined in the Finance Bill 2023-24. This includes changes related to the application of event 24 (pertaining to lump sum payments or lump sum death benefits concerning relevant benefit crystallization events) and the operation of the pension commencement excess lump sum.

Furthermore, HMRC aims to amend PAYE regulations to require pension scheme administrators to furnish information regarding taxable lump sums under real-time information. However, until these regulations are revised, administrators should adhere to the guidance provided in HMRC’s March 2023 newsletter.

HMRC will continue to release information about upcoming changes, with further guidance expected in subsequent newsletters.

For further information on how you can maximise your pension, contact us today.