On 6 April 2024 several legal changes came into effect to abolish the Lifetime Allowance (LTA). It’s a complex picture, with amendments implemented by a new Finance Act, additional regulations, and a web of underlying guidance notes and newsletters.

 

Further tweaks are expected to be made in the coming weeks to fix some of the problems that have already been spotted, backdated to 6 April. If Labour were to win the next election it is not clear whether the changes will be maintained. 


The new regime – the LTA, but not as you know it?

Although the LTA has been abolished, there remains an overall Lump Sum Allowance (LSA) and Lump Sum Death Benefit Allowance (LSDBA) which have been set by reference to the pre-April 2024 Pension Commencement Lump Sum (PCLS) limit (£268,275) and LTA (£1,073,100), respectively. There is a new Overseas Transfer Allowance, also set at £1,073,100. These are fixed allowances and are not currently due to change in line with inflation, so they are expected to lose value over time.

Any lump sums paid which exceed either limit will be taxed at the recipient’s marginal rate (which can be up to 45%). This is in comparison to the old flat rate of 55%. 

What should Trustees be doing?

Check administrators have updated their processes and communications for members (especially for those retiring imminently, while the legal landscape remains in a state of flux). 

Legal review of pension scheme’s trust deed and rules to check for areas that may require amendment, for example: 

  • provisions which link benefit accrual or calculations in any way to the LTA;  

  • rules which require (rather than permit) trustees or employers to, for example, check a member’s LTA before paying a benefit; and 

  • outdated legislative references, provisions and terminology.

While a statutory override was belatedly introduced to smooth the transition to the new regime, schemes should still ensure they understand the issues and make necessary changes in a timely manner. 

Decide whether a Pension Commencement Excess Lump Sum can be provided in place of a Lifetime Allowance Excess Lump Sum, and make amendments as necessary to your Scheme Rules.

Ensure other documents, such as scheme booklets, have been appropriately updated. 

Ensure that members are aware of the changes (particularly those due to take their benefits soon) and highlight the deadline for applying for any transitional protections. 

Consider if any projects, such as GMP equalisation, are impacted. For example, GMP conversion might be a more attractive option following LTA abolition, due to fewer complexities relating to the risk of loss of tax protections. 

What should Employers be doing?

Review benefit packages for high earners who previously had concerns over LTA restrictions. For example: 

  • Are there any employees who have been allowed to opt-out of the pension scheme and receive cash in lieu of pension contributions? 

  • Are there any employees covered by an excepted group life policy, for life assurance benefits? 

Note that such employees may still have a case for continuing with these arrangements, but a review to check benefit packages are still fit for purpose is encouraged. 

Rules and benefit design - discuss with the Trustees what amendments might be appropriate or required.

We can support you by

  • Providing training

  • Reviewing and advising on your scheme’s Trust Deed and Rules

  • Preparing a suitable deed of amendment to deal with LTA changes in your Trust Deed and Rules 

  • Considering and advising on your employee benefit package

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at April 2024. Specific advice should be sought for specific cases. For more information see our terms & conditions.

Date published

15 April 2024

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