This is an unfortunate consequence of the overly ambitious timescale for abolishing the LTA and the unexpectedly lengthy wait between the new regime being implemented and the amending regulations coming into force.
But that will be no comfort for those who will feel they have lost out due to this change.
Going forward, when deciding whether a certificate is the best option it will be important to understand which version of the standard transitional calculation would otherwise apply.
Standard transitional calculation – lump sum death benefits
The new regulations also include a more minor change to the standard transitional calculation in respect of the LSDBA.
The calculation has been tweaked so that the LSDBA will be reduced by 100 per cent of all LTA used only where a serious ill-health sum was paid before age 75, or if either an uncrystallised funds lump sum death benefit or defined benefits lump sum death benefit was paid in relation to members who died before age 75 and within the relevant two-year period.
This limits the situations where 100 per cent of LTA use is deducted from the available LSDBA. This will not impact many people but is a welcome change as it more closely matches treatment prior to April 6 2024 where only these lump sum death benefits would have been tested against the LTA.
All of these changes are effective from April 6 2024, so those who have taken tax-free cash since that date may find their available allowances are slightly different than first thought and may want to contact their scheme to recalculate this.
Transitional tax-free amount certificates
The Finance Act 2024 incorrectly excluded any tax-free cash taken after age 75 in calculating the available LSA when an individual applied for a certificate.
HMRC recommended that pension schemes could take a pragmatic approach and include these lump sums in their calculations immediately to ensure certificates would be valid.
However, some individuals may have chosen to wait for the new regulations before applying for a certificate, so now would be a good time to revisit this.
The regulations also impose a new requirement on members, and personal representatives of deceased members, who have received a certificate to provide a copy of it to all their certification administrators – this means all registered pensions schemes they (or the deceased) are a member of and all insurance companies they receive an annuity from.
The copy certificate must be provided within 90 days of receiving it, or before the individual’s first relevant benefit crystallisation event (RBCE). Similarly, there is also a new requirement to inform all the individual’s certification administrators within 90 days when a certificate is cancelled.
