This will mean fewer over 75s may need to apply for a certificate; the standard transitional calculation may now be more suitable for them.
However, those who did go on to take tax-free cash after their 75th birthday will still have their allowances calculated using the original version of the transitional calculation and may still benefit from a certificate.
Example 1
Anne turned 75 before April 6 2024. She used 40 per cent of her LTA of £1,073,100 in May 2021, and a further 40 per cent when her remaining uncrystallised funds were tested on her 75th birthday. She does not have any transitional protections.
Using the original standard transitional calculation, Anne’s remaining LSA would be reduced by £214,620 (80 per cent of £268,275), leaving her with £53,655.
Under the new standard transitional calculation, Anne’s LTA use when she turned 75 would be ignored. Her LSA will now only be reduced by £107,310 (40 per cent of £268,275), leaving her with £160,965.
If Anne had taken a pension commencement lump sum (PCLS) after her 75th birthday she would not benefit from the new calculation. But she could still apply for a certificate, which may benefit her.
The good news is that this revised calculation will likely reduce the number of people who need to apply for a certificate. But as is often the case when the rules change, there are both winners and losers.
A certificate has the potential to create a better outcome for those whom the standard transitional calculation does not work well. The decision to apply for a certificate is irreversible, and it must be relied on once issued. It can only be cancelled if the transitional amounts it confirms are inaccurate.
Unfortunately, from November 18 there will be a small group who may find that a certificate is no longer the best option for them.
Example 2
Nathan used up 60 per cent of his LTA of £1,500,000 in November 2014. He does not have any transitional protection. At the time he received £225,000 as PCLS.
He turned 75 in January 2023, with his uncrystallised funds using up his remaining 40 per cent LTA.
As he had used up 100 per cent of his LTA, Nathan would have been left with no LSA available and would have lost the ability to take tax-free cash from his remaining pension funds. He therefore applied for a certificate, so his LSA was only reduced by £225,000 to £43,275.
If Nathan had waited until November 18, he would have been subject to the new standard transitional calculation. This would have excluded the LTA used up at his age 75 test, and his remaining LSA would have been calculated as 25 per cent of 60 per cent of £1,073,100. His LSA would have been reduced by only £160,695 to £107,580.
However, there is nothing Nathan can now do to get the higher amount of tax-free cash. He cannot cancel the certificate as the amounts used were correct at the time of applying.
