On the 6thApril 2024 the Lifetime Allowance regime for pensions ended and was replaced by three new allowances – the lump sum allowance, the lump sum and death benefit allowance, and the overseas transfer allowance. This post today is going to focus on the lump sum allowance as some of you will need to take action, potentially urgently.
The lump sum allowance is the amount that can be taken from your pension tax-free. The standard lump sum allowance is £268,275 (25% of the previous Lifetime Allowance). Those of you with protection on your pensions will have an increased allowance depending on the type of protection you have.
If you have never taken benefits from any pension scheme you can stop reading, as there is nothing for you to do.
If you have taken pension benefits previously, your lump sum allowance is reduced by how much Lifetime Allowance you had utilised i.e. if you used 50% of your lifetime allowance previously, you automatically have a lump sum allowance of £134,137.50.
However, in certain scenarios, you may be able to apply for a transitional tax-free cash certificate to give yourself a higher lump sum allowance (it can also provide a higher lump sum and death benefit allowance, but most relevant for most is the lump sum allowance). There are quite a few scenarios under which this can happen, but the main three are:
- •You took pension benefits from a defined benefit scheme and did not take any tax-free cash, or took very little;
- •You took pension benefits when the Lifetime Allowance was below £1,073,100; or
- •You are over 75 and your Lifetime Allowance was used up by the age 75 test. If any of those apply to you it is important to check your position and apply for a transitional tax free cash certificate as soon as possible, even more so if you are intending to take pension benefits this year. You must proactively apply and providers have 90 days to provide you with one once your application is received. You must have the certificate before you next take pension benefits – if you take pension benefits from now onwards without having a certificate you will not be eligible for one, even if you were entitled to a higher allowance.
We will be in touch with all affected clients shortly to confirm what action to take, if any. You will also receive an auto-generated statement from your pension provider confirming your lump sum and lump sum and death benefit allowances. These will have been calculated using the standard calculation based on information they hold for you. If you have any questions on the statement, please speak to your adviser.
