Navigating the new pension regulations: what clients need to know

Are you prepared for the upcoming changes to pension regulations? The new rules, set to take effect on 6 April 2024, replace the Lifetime Allowance with three new allowances:

• the lump sum allowance (LSA) at £268,275;
• the lump sum and death benefit allowance (LSDBA) at £1,073,100; and
• the overseas transfer allowance (OTA) at £1,073,100.

We won’t delve into every detail of the new regulations here so, if you’re looking for comprehensive background, this M&G article, this micro site from A J Bell and this Royal London guide are well worth a look. Instead the question I’m going to ask (and answer) is: ‘What do the changes mean for savers?’

Who needs to plan around the new allowances?

Most people will not have to do anything. But those who could breach the new limits may need to plan around the LSA and LSDBA and transitional tax free amount certificates (TTFAC).

For example, some people with uncrystallised funds on 6 April 2024 may be better off applying for a TTFAC. Specifically:

• those who crystallised pension benefits when the LTA was less than £1,073,100; and
• those who previously crystallised pension benefits but did not receive the maximum pension commencement lump sum (PCLS) available – for example, from a defined benefit pension scheme – we expect this will be quite common in the case of public sector schemes.

However, some people with uncrystallised funds on 6 April 2024 may be better off by retaining the standard calculation (i.e. should not obtain a Certificate):

• those who received a PCLS with scheme specific protection before 6 April 2024; and
• those who do not have transitional LTA protection and crystallised pension benefits when the LTA was more than £1,073,100.

We have yet to see how the new TTFAC application process will work in practice, but we hope that pension administrators will flag any situations where someone will be worse off before issuing one.

It’s important to note that a TTFAC must be obtained before any crystallisation takes place after 5 April 2024. Otherwise the standard calculation applies.

This means that those making regular crystallisations – for example monthly UFPLS or monthly phased drawdown – may need to pause them until their position has been assessed.

Take action today

Don’t let the new pension regulations catch you or your clients off guard. If you would like to explore the options for your clients, please get in touch and we will be happy to help.