Guidance

Newsletter 159 — April 2024

Published 25 April 2024

Lifetime allowance (LTA) Abolition

Entitlement to benefits pre and post 6 April 2024

Updates to the Pensions Tax Manual (PTM) following the abolition of the LTA were published on 27 March 2024. Pages related to the LTA and associated concepts have been moved to the National Archives website, as they no longer reflect current legislation.

Archived chapters 8 and 9 can be found in the Pensions Tax Manual.

We are aware that guidance setting out when an individual becomes entitled to various kinds of pension was also inadvertently archived. There has been no change to the definition of when an individual’s entitlement to a pension arises. It remains defined as per section 165(3) of Finance Act 2004.

This is reflected in new PTM guidance published last week in the PTM061310 manual, which also covers the definition of individuals becoming entitled to lump sum benefits.

We have received several questions on the treatment of benefits to which an individual became entitled prior to 6 April 2024, but which are paid after this date. The following scenarios provide clarification for the various lump sums.

Scenario 1 — Members who have died before 6 April 2024 who have benefits distributed, other than as lump sums,  after this date

The benefit is not a relevant benefit crystallisation event (RBCE) because it is not the payment of a lump sum or lump sum death benefit.

Whether it is a benefit crystallisation event (BCE) would depend on the effective date of the beneficiary becoming entitled to the benefits. For instance, for what was a BCE5C, the effective date is the date that the deceased member’s funds are designated as being available to provide the drawdown pension to the beneficiary — read the lifetime allowance and the lifetime allowance charge: benefit crystallisation events.

If this date is after 6 April 2024, then the payment would also not be a BCE.

Scenario 2 — Members who are paid a pension commencement lump sum (PCLS) after 5 April 2024 but in relation to a drawdown crystallisation before this date

For tax purposes, an individual becomes entitled to a PCLS in connection with becoming entitled to the relevant pension — read section 166(1)(a) of Finance Act 2004. Entitlement to a pension is also part of the conditions for the payment to be a PCLS — paragraph 1(1)(aa) of Schedule 29 to Finance Act 2004.

If the individual becomes entitled to the pension before 6 April 2024, the date at which the individual becomes entitled to the PCLS must be before this date and therefore the PCLS will be a BCE and not a RBCE.

Scenario 3 — Members who are paid a serious ill-health lump sum (SIHLS) after 5 April 2024 but became entitled to it before this date

For tax purposes, an individual becomes entitled to a SIHLS when they have an actual entitlement to be paid that lump sum — read section 166(2)(b) of Finance Act 2004.

Where a member became entitled to a SIHLS on or before 5 April 2024, it would be a BCE and tested against the lifetime allowance.

Scenario 4 — Members who are paid an uncrystallised funds pension lump sum (UFPLS) after 5 April 2024 but based on an instruction before this date

For tax purposes, an individual becomes entitled to an UFPLS immediately before it is paid — read section 166(2)(aa) of Finance Act 2004. Therefore, if payment is not made until after 5 April 2024, it would be an RBCE and tested against the new allowances.

Scenario 5 — Member dies before 6 April 2024 and more than one lump sum death benefit is paid in respect of that individual after this date

The legislation (read section 637S(7) and (8) of Chapter 15A to ITEPA 2003) provides that, where more than one RBCE occurs in relation to an individual, the events are treated as occurring immediately before the individual’s death.

The date at which a lump sum death benefit is paid in respect of an individual is therefore backdated to the date of death.

This backdating applies only for the purposes of calculating the member’s available allowances. It does not alter whether the payment is a BCE or an RBCE.

The payment of a lump sum death benefit on or after 6 April 2024, where the date of payment is backdated to before 6 April 2024, is therefore still an RBCE. The appropriate amount would still be deducted from an individual’s lump sum and death benefit allowance.

In cases where there are both BCEs and RBCEs paid in respect of the deceased individual, the BCEs should be treated as occurring first (although the order of more than one BCE may be determined by their personal representatives) and the RBCEs should be treated as occurring next (although the order of more than one RBCE may be determined by their personal representatives).

Pension commencement excess lump sum (PCELS)

Further to previous guidance in relation to the PCELS, we can confirm that:

• a PCELS is separate from a PCLS — only the payment of a PCLS is an RBCE

• a PCELS cannot be included in the lump sum amount (‘A’) within the formula at paragraph 2C(2) of Schedule 29 to Finance Act 2024 — this is consistent with guidance prior to 6 April 2024, where the amount of any lifetime allowance excess lump sum could not be included in the lump sum amount

• as the definition of entitlement to a pension has not changed, the definition is not met where the individual commutes all of the pension to a PCELS — a PCELS must be paid in connection with the individual becoming entitled to a relevant pension

• a PCELS cannot be paid where another authorised lump sum could be paid instead — therefore, if the individual could be paid an UFPLS under tax legislation (section 166 of Finance Act 2004) they cannot be paid a PCELS, even if their particular scheme rules do not permit the payment of an UFPLS

• a PCELS cannot be paid in respect of contracted-out rights as a result of regulations 18 and 25 of SI 2015/1677 — this is consistent with the position on contracted-out rights and the lifetime allowance excess lump sum

Scheme-specific lump sum protection

Consistent with the government’s policy to ensure that the LTA abolition does not reduce individuals’ entitlements to higher tax-free lump sums where they hold valid protections, we can confirm that the policy intent is for a member’s additional lump sum amount to be the same as under the LTA, maintaining the value of their protection.

Similarly, where there has been a partial transfer of rights, the adjustment to a member’s lump sum protection should be the same as under the LTA, ensuring that no-one is put in a worse tax position.

Scheme administrators have highlighted that the portion of the formula which prior to 6 April 2024 read ‘CLSA’ and ‘FSLA’ (where CLSA was current lifetime allowance and FSLA was standard lifetime allowance for tax year 2006 to 2007), and has been replaced with the numerical equivalent of 0.7154, does not operate correctly for all individuals. It only produces the same result as under the LTA where an individual’s standard lifetime allowance was £1,073,100.

We can therefore confirm that this portion of the calculation will be modified for individuals with additional protections to provide for the same additional lump sum amount as under the LTA.

We will confirm the changes to the formula at paragraph 34(2) of Schedule 36 to Finance Act 2004 as soon as possible.

As previously highlighted, where schemes encounter particular issues, they should contact HMRC directly to resolve these. This includes instances of customer hardship caused by delays to the payment of pension commencement lump sums under scheme-specific protection.

Statutory Override

Schemes have highlighted a slight technical error with Regulation 4(23) of The Pensions (abolition of lifetime allowance charge) Regulations 2024. This is because some pension scheme rules rely on legislation repealed by section 14 of and Schedule 9 to, the Finance Act 2024, and under current legislation these limits would not be preserved by the statutory override.

We will therefore amend this provision to ensure that the changes made by those provisions of Finance Act 2024 do not affect the interpretation of any relevant rules of a registered pension scheme.

Lump sum death benefits and transitional calculations

Scheme administrators have also highlighted a technical error with the standard transitional calculation at paragraph 126(4)(a)(ii) of Schedule 9 to Finance Act 2024.

This provides that the appropriate percentage for the purposes of the standard transitional calculation is 100% in cases where a lump sum death benefit has been paid in respect of an individual prior to 6 April 2024. However, only an uncrystallised funds pension lump sum death benefit and a defined benefit lump sum death benefit were BCEs prior to 6 April 2024.

The other 4 lump sum death benefits which are RBCEs from 6 April 2024 were never BCEs and so would not have been paid tax-free up to the LTA.

As a result, the government will bring forward legislation, through regulations, to provide that the 100% appropriate percentage is only triggered where:

• a serious ill-health lump sum was paid to the member under age 75 prior to 6 April 2024
• an uncrystallised funds pension lump sum death benefit was paid in respect of a member before 6 April 2024 who was under 75 when they died
• a defined benefit lump sum death benefit was paid in respect of a member before 6 April 2024 who was under 75 when they died

Frequently asked questions and further communications

A consolidated version of frequently asked questions related to the LTA abolition was circulated to the LTA working group on 27 March 2024. That document is also attached as an annex to this newsletter.

Clarifications have been provided at questions 13, 21, 70, 75, 76, 104 and 105, following confirmation of the areas for further regulations set out in Pension Schemes Newsletter 158. 

Where a member requires a payment which is affected by the further regulations and cannot wait until these are introduced due to financial hardship, you can contact HMRC directly at ltaadministration@hmrc.gov.uk and put ‘LTA further regulations — impacted member’ in the subject line.

All other queries on the LTA abolition, relating both to policy and process changes, should also be sent to this inbox.

Lifetime allowance abolition — lump sum reporting

In lifetime allowance guidance newsletter: February 2024 we confirmed there would be changes to PAYE regulations and to real time information (RTI) that will require pension scheme administrators to report relevant lumps sums through RTI.

We would like to work closely with you as we continue to work through the detail of the RTI changes and the impacts on systems and processes.

If you would like to be involved in a workshop to look at this in more detail, email ltaadministration@hmrc.gov.uk and put ‘lifetime allowance (LTA) lump sum reporting workshop’ in the subject heading.

Pension flexibility statistics

HMRC can now give more information on the number of tax repayment claim forms processed for pension flexibility payments.

From 1 January 2024 to 31 March 2024, we processed:

• P55 — 8,378 forms
• P53Z — 3,865 forms
• P50Z — 1,018 forms

The total value repaid is £42,003,943

The tax repayment figures for the period 1 April 2024 to 30 June 2024 will be published in Pensions schemes newsletter ― July 2024.

Registration statistics

For 2023 to 2024, HMRC received in total 1,917 applications to register new pension schemes.

Of these schemes, 69% have been registered and we have refused registration for 22% of applications. No decision has been made on the remainder yet.

Relief at source

Annual return of information for 2023 to 2024

We want to remind you that the deadline for submitting the 2023 to 2024 annual return of information is 5 July 2024. If you do not submit this on time, it may delay: 

• payment of interim claims for the tax month ending 5 July 2024 
• payment of any claims for subsequent months until we receive your annual return of information 

You must make sure you submit the Pension scheme administrator declaration: annual return of information (APSS590) with your annual return of information, as this forms part of your return. Without it your return will fail processing. 

You can either: 

• send the APSS590 annual return of information declaration by post
• email the APSS590 annual return of information to reliefatsource.administration@hmrc.gov.uk and put ‘APSS590 Annual return of information declaration’ in the subject line 

If you submit your annual return of information but it fails processing, we will: 

• still consider this to be outstanding 
• stop any subsequent interim repayment claims until we receive a re-submission 

If failure occurs on the third submission, we will stop all future interim claims until we receive a further re-submission that is considered successful. 

You can only submit your 2023 to 2024 annual return of information through the Secure Data Exchange Service.

National Insurance number checking service

HMRC have recently launched the find my National Insurance number service. You may wish to signpost this service to your members to help reduce the number of unmatched members on your latest annual residency status report.

This service allows individuals to view their National Insurance number immediately and they can either download a digital version of their National Insurance number confirmation letter or store their National Insurance number in their Google or Apple wallet. 

This can save individuals up to 15 days, the estimated time taken to receive a National Insurance number confirmation letter in the post.

Managing Pension Schemes service

Event Report

We’d like to remind you that Event Reports for the tax year 2023 to 2024 onwards must be filed on the Managing Pension Schemes service.

Find out more in September 2023 Managing pension schemes service newsletter.

From 6 April 2024, Event 24 has been added to the Event Report. This event is for reportable payment of lump sums or lump sum death benefits and has been introduced as a result of fully abolishing the lifetime allowance (LTA) and will show on the Event Report for the tax year 2024 to 2025 onwards.

For the tax year 2024 to 2025 onwards, the Event Report has also been updated to remove:

• Event 2
• Event 6
• Event 7
• Event 8
• Event 8A

Pension scheme return

In Pension schemes newsletter 156 we told you about new guidance we have published to help you prepare for completing your 2024 to 2025 pension scheme return on the Managing Pension Schemes service.

Since then, we have reduced the information required for the Self Invested Personal Pension (SIPP) version of the pension scheme return and the guidance has now been updated to reflect this.

Two steps to migrating your schemes ― enrol and migrate  

Take action to migrate your pension schemes. 

As a scheme administrator, if you have not already, you must first enrol on the Managing Pension Schemes service, using the Government Gateway username and password for your existing ‘A0’ administrator ID.

If you have multiple scheme administrator IDs, you must enrol on the Managing Pension Schemes service using the username and password for your ‘Master’ ID.  Read migrating your pension scheme to the Managing Pension Schemes service for more information on ‘master’ and ‘ancillary’ ID’s. 

To migrate your pension schemes, you’ll need to:  

• sign in to the Managing Pension Schemes service 
• select ‘Add a pension scheme from the Pension Schemes Online service’

Public service pensions remedy

Calculate your public service pension adjustment service

Due to a technical issue, the calculate your public service pension adjustment service is currently unavailable. We apologise for any inconvenience this causes. We’ll keep you updated on progress for re-opening the service, through future newsletters.

If you have members who need to make a submission to HMRC, ask them to email publicservicepensionsremedy@hmrc.gov.uk and put ‘PSPR submission request’ in the subject line.

Alternatively, they can contact us on 0300 123 1079 and select option 1.

Public service pensions remedy — tax treatment of interest

We have updated pension schemes newsletter 156 following further considerations on the payment of interest as required by the Employment Tribunal, or where done in accordance with HM Treasury directions in relation to the public service pensions remedy.

This is to reflect that where interest is paid as required by the Employment Tribunal or HM Treasury directions in respect of late payment of a benefit that is an authorised payment, the interest will also be an authorised payment.

As it is an authorised payment, the unauthorised payment rules do not apply and the:

• member will not be subject to the unauthorised payments charge
• scheme administrator will not be subject to the scheme sanction charge

This is due to the specific circumstances of the public service pensions remedy. HM Treasury directions have prescribed the rate of interest to be paid in relation to such payments, in line with the Employment Tribunal’s rulings in like cases.
 
Pension scheme newsletter 156, in relation to specific payments of interest in accordance with the Employment Tribunal’s rulings or HM Treasury directions, has now been updated to reflect the following:

• interest on compensation paid under the Public Service Pensions and Judicial Offices Act 2022 will not be taxable
• interest on authorised pension payments will be taxed in accordance with pension schemes newsletter 140
• interest on authorised top-up lump sums will be treated as part of that lump sum if it is paid as part of the lump sum and does not exceed the maximum amount for the type of lump sum — where the interest exceeds the maximum, it will be a scheme administrator member payment
• interest on unauthorised payments will be an unauthorised payment