Guidance

Newsletter 163 — October 2024

Updated 18 November 2024

Lifetime allowance (LTA) abolition

Abolition of the lifetime allowance (LTA) — further regulations

Further regulations to address the technical changes required to complete the work to abolish the LTA were laid on 7 October 2024 and 9 October 2024. The regulations will have effect from 18 November 2024 (subject to parliamentary process). Once effective, they will apply retrospectively from 6 April 2024 onwards.

You can read more about:

• The Pensions (Abolition of Lifetime Allowance Charge etc) (No. 2) Regulations 2024
• The Pensions (Abolition of Lifetime Allowance Charge etc) (No. 3) Regulations 2024

HMRC held a short technical consultation on these regulations which closed on 14 August 2024. Thank you to everyone who took the time to reply.

We have incorporated your suggestions into the regulations where appropriate. There were a number of questions raised which did not result in changes to the legislation — we will provide more details on these points in the November newsletter.

The Pensions (Abolition of Lifetime Allowance Charge etc) (No. 2) Regulations 2024

The amendments addressed in these regulations include the following areas.

Lump sums and death benefits

The regulations include:

• clarification that where more than one lump sum death benefit is issued in respect of an individual, they are treated as occurring at the same time
• clarification of the amount of Lump Sum Death Benefit Allowance (LSDBA) which is used on the payment of a lump sum death benefit
• an amendment to limit the situations where the appropriate percentage is a 100% deduction from the LSDBA, in respect of lump sum death benefits
• an amendment to the ‘lifetime allowance previously used amount’ where an individual has reached the age of 75 prior to 6 April 2024 and has not become entitled to a lump sum after reaching that age
• the introduction of a requirement for scheme administrators to report funds crystallised prior to 6 April 2024 and those crystallised after, to ensure the correct deduction from the LSDBA
• an amendment to ensure there is no tax liability in respect of life cover lump sums

Protections

The regulations include:

• clarification of the applicable Lump Sum Allowance (LSA) and LSDBA where an individual is relying on primary protection and has pension rights over £1,500,000
• clarification that an individual who has previously been entitled to a serious ill-health lump sum and is relying on enhanced protection, cannot subsequently receive a pension commencement lump sum
• an amendment in respect of fixed protection and individual protection in relation to the relevant amount of LSA and LSDBA

International

The regulations include:

• the introduction of the concept of ‘adjusted lifetime allowance previously used amount’, which deducts any amount attributable to the occurrence of a benefit crystallisation event (BCE) 1 prior to 6 April 2024, from the available overseas transfer allowance (OTA)
• the introduction of a requirement for a scheme manager to notify HMRC of the available overseas transfer allowance when reporting a change of circumstance or making an onward transfer

Transitional tax-free amount certificate (TTFAC)

The regulations include:

• the introduction of a penalty where a TTFAC is not issued within the required timeframe
• an amendment to include a member’s previously used lifetime allowance amount on a TTFAC
• the introduction of a requirement for an individual to give a copy of the TTFAC to all pension schemes of which they are a member and to notify those schemes if the certificate is cancelled

Reporting

The regulations include:

• clarification around which lump sum death benefits are relevant for pay as you earn purposes
• the introduction of the following information requirements:
  • a member should notify the scheme administrator of the amount of their available OTA
  • scheme administrators should provide information to legal personal representatives in respect of lump sum death benefits paid
  • a transferring scheme administrator should give information on the members permitted maximum to a receiving scheme if the member has enhanced protection

Pension Protection Fund (PPF) and Financial Assistance Scheme (FAS)

The regulations include various amendments in respect of payments made by the PPF and FAS to ensure payments:

• can continue to be made
• will continue to be subject to Income Tax

The Pensions (Abolition of Lifetime Allowance Charge etc) (No. 3) Regulations 2024

The amendments addressed in these regulations include the following areas.

Lump sums and death benefits

The regulations include:

• an amendment of the definition of ‘the applicable amount’ in relation to the calculation of the permitted maximum for a pension commencement lump sum (PCLS) which is paid in connection with a scheme pension under either a defined benefits arrangement or a collective money purchase arrangement
• a correction of the calculation in respect of the value of a member’s relevant crystallised pension rights for the purposes of the trivial commutation lump sum
• an insertion of a transitional provision which ensures that trivial commutation payments, made between 6 April 2024 and the day before the regulations come into force, remain treated as trivial commutation payments despite the introduction of a new calculation in these regulations

Protections

The regulations include:

• a correction to the calculation of enhancement factors to rely on the standard lifetime allowance — the calculation currently uses £1 million, which results in the enhancement of the lump sum and death benefit allowance, exceeding that achieved under the LTA
• an amendment to ensure enhancement factors do not apply to stand-alone lump sums — this will align with pre-6 April 2024 legislation and will mean that stand-alone lump sums are not more advantageous to individuals than under the LTA
• for scheme specific lump sums, changes that will:
  • provide for a charge to tax where the payment exceeds an individual’s allowances
  • correct the additional lump sum calculation, so that it works for individuals with additional protections and provides the same additional lump sum as under the LTA
  • correct the additional lump sum calculation for individuals with defined benefit or collective money purchase schemes, or both, as it is currently more generous than intended
  • ensure that members will not be in a worse position where the result of the scheme-specific lump sum protection formula produces a sum that was less than 25% of the value of benefits

International

The regulations include an insertion of a new paragraph, to modify the availability of a member’s overseas transfer allowance (OTA) where the member has had a pension in payment before 6 April 2006.

Transitional tax-free amount certificate (TTFAC)

The regulations include an amendment to ensure that:

• a lump sum paid on reliance of an erroneous TTFAC remains an authorised payment
• any excess above the amount which should have been authorised is subject to the members marginal rate of tax

Payroll reporting

In Lifetime allowance guidance newsletter — December 2023 we explained how pension scheme administrators should, where there is an excess amount over an individual’s lump sum allowance or lump sum and death benefit allowance, report the following authorised lump sums:

• uncrystallised funds pension lump sum
• serious ill-health lump sum
• pension commencement excess lump sum

In Lifetime allowance guidance newsletter — February 2024 we clarified that stand-alone lump sums should be reported by following the guidance in Lifetime allowance guidance newsletter — March 2023.

We also explained that new data items would be introduced to Real Time Information (RTI) to enable payroll reporting to identify pension commencement lump sums and stand-alone lump sums.

We can now confirm that two new data items have been added to the full payment submission (FPS) from April 2025. These are:

• data item 219 — pension commencement excess lump sum
• data item 220 — stand-alone lump sum

The RTI Rules and Interface Management artefacts and supporting technical specifications were published on 25 September 2024.

As well as the addition of the two new data items, some validation has been removed, specifically error code 7935. This means that from April 2025 you will only be able to include one of the following data items for each payment being reported:

• 168
• 171
• 172
• 219
• 220

If you have any questions about the technical specifications you should email the software developers support team at SDSTeam@hmrc.gov.uk.

From April 2025 you should report authorised lumps sums where there is an excess over an individual’s lump sum allowance or lump sum and death benefit allowance. How you report the lump sum will depend on the type of lump sum it is.

Uncrystallised funds pension lump sum

If 25% of the lump sum exceeds the permitted maximum, the excess is taxable and must be reported through the payroll.

You should follow the guidance in paragraph 2.2.6 of the CWG2: further guide to PAYE and National Insurance contributions for reporting uncrystallised funds pension lump sums and include the excess in taxable income.

Serious ill-health lump sum

For a member under 75, where the lump sum exceeds the permitted maximum, the excess is taxable and the tax deducted must be reported through payroll.

You should follow the guidance in paragraph 2.2.8 of the CWG2: further guide to PAYE and National Insurance contributions to do this.

You should report both the taxable and non-taxable elements of the payment.

Pension commencement excess lump sum (PCELS)

The payment of a pension commencement excess lump sum will always be subject to income tax at the recipient’s marginal rate.

To tax a PCELS, you need to:

1. Set up a new separate payroll record with a unique payroll ID.

2. Treat the payment in the same way as other pension payments and operate PAYE in the normal way.

3. Deduct tax on the taxable element using the emergency code on a week 1 or month 1 basis — if you already have a tax code for the current year from the individual’s P45, you should operate that code on a week 1 or month 1 basis.

To report a PCELS under RTI you should complete your Full Payment Submission (FPS) using the information in the following table.

Field	What to enter
Starting date	Enter the start date if you are reporting the first payment to your pensioner. Do not include the starting date if it has already been reported in an earlier submission
Annual amount of the occupational pension	Enter the amount of the first payment and do not pro-rata it from the start date. This applies to payment of pension or income paid from a registered pension scheme
Taxable pay to date in this employment	Enter the total taxable element of the pension paid to date within the tax year, including this payment
Total tax to date in this employment	Enter the total tax to date in this pension within the tax year
Taxable pay in this period	Enter the taxable pension in this pay period
Value of payments not subject to tax and National Insurance contributions in pay period	Enter any non-taxable element of the pension payment for payments made by Bacs (Bankers Automated Clearing System)
Occupational pension indicator	Enter ‘Yes’ in the field on the first and every payment
Payroll ID	Include the payroll ID
Pay frequency	Use the one-off payment indicator — ‘IO’
Pension commencement excess lump sum indicator	Enter ‘Yes’
Flexible drawdown taxable payment	Enter the taxable element of any payment in the field
Flexible drawdown non-taxable payment	Enter the non-taxable element of any payment in this field — this should be ‘0.00’ as a PCELS is wholly taxable

Stand-alone lump sums

If the amount of the stand-alone lump sum exceeds the permitted maximum, the excess is taxable as pension income and must be reported through the payroll.

If the stand-alone lump sum is below the permitted maximum and can be paid entirely tax-free there is no requirement to report the payment through RTI.

To tax a stand-alone lump sum, you need to:

1. Set up a new separate payroll record with a unique payroll ID.

2. Treat the payment in the same way as other pension payments and operate PAYE in the normal way.

3. Deduct tax on the taxable element using the emergency code on a week 1 or month 1 basis — if you already have a tax code for the current year from the individual’s P45, you should operate that code on a week 1 or month 1 basis.

To report a stand-alone lump sum under RTI you should complete your Full Payment Submission (FPS) using the information in the following table.

Field	What to enter
Starting date	Enter the start date if you are reporting the first payment to your pensioner. Do not include the starting date if it has already been reported in an earlier submission
Annual amount of the occupational pension	Enter the amount of the first payment and do not pro-rata it from the start date. This applies to payment of pension or income paid from a registered pension scheme
Taxable pay to date in this employment	Enter the total taxable element of the pension paid to date within the tax year, including this payment
Total tax to date in this employment	Enter the total tax to date in this pension within the tax year
Taxable pay in this period	Enter the taxable pension in this pay period
Value of payments not subject to tax and National Insurance contributions in pay period	Enter any non-taxable element of the pension payment for payments made by Bacs (Bankers Automated Clearing System)
Occupational pension indicator	Enter ‘Yes’ in the field on the first and every payment
Payroll ID	Include the payroll ID
Pay frequency	Use the one-off payment indicator — ‘IO’
Stand-alone lump sum indicator	Enter ‘Yes’
Flexible drawdown taxable payment	Enter the taxable element of any payment in the field
Flexible drawdown non-taxable payment	Enter the non-taxable element of any payment in this field

Pension flexibility statistics

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

From 1 July 2024 to 30 September 2024, we processed:

• P55 —  8,629 forms
• P53Z — 2,948 forms
• P50Z — 754 forms

Total value repaid: £44,295,438

The tax repayment figures for the period 1 October 2024 to 31 December 2024 will be published in pensions schemes newsletter ― January 2025.

Registration statistics

For the period 6 April 2024 to 30 September 2024 HMRC received in total 962 applications to register new pension schemes.

Of these applications, 56% have been registered and HMRC has currently refused registration for about 22% of applications. No decision has yet been made on the outstanding applications.

Managing pension schemes service

Pension scheme return

With 6 months to go until the release of the pension scheme return (PSR) on the Managing pension schemes service (MPS), we’re taking this opportunity to remind you how you can prepare for the new 2024 to 2025 pension scheme return.

From April 2025, you will need to submit any returns for the tax year 2024 to 2025 onwards on the Managing pension schemes service. You will not be able to file a PSR for the 2024 to 2025 tax year onwards on the Pension schemes online service.

HMRC will send you a notice to file 2024 to 2025 returns for schemes on the Managing pension schemes service. The notice to file will state the deadline the pension scheme return must be submitted by.

There will be 2 types of the PSR:

• standard
• self-invested person pension (SIPP)

The type of scheme you have registered will determine which PSR you will have to complete. We’ll ask for more information than we used to for previous pension scheme returns that were completed on the Pension schemes online service.

Depending on the size of the scheme, different information will be required as part of the return. For a pension scheme that requires a standard PSR, a full return (including members’ details) will only be required for schemes with less than 100 members. Most schemes will need to provide designatory details.

To help you prepare for this, you can read further guidance in Changes to 2024 to 2025 pension scheme return for Pension Scheme Administrators.

Migrating your pension schemes

Migrating your schemes to the Managing pension schemes service as soon as possible will give you more time to complete your PSRs.

If you haven’t already, you will need to enrol onto the Managing pension schemes service. Further guidance can be found in Pensions schemes newsletter 162 — September 2024.

To migrate a scheme, you should select ‘Add a pension scheme from the Pension schemes online service’ and select each scheme you need to migrate. You should not select ‘Apply to register a new pension scheme’.

If you’ve incorrectly tried to re-register an existing pension scheme that you’re an administrator for, email: migration.mps@hmrc.gov.uk and put ‘Incorrect scheme registration’ in the subject line.

Only pension schemes with a status of ‘open’ on the Pension schemes online service will be included on your list of schemes to migrate. If you can see schemes on your list that are inactive and should be wound up, you should email: migration.mps@hmrc.gov.uk and put ‘Managing pension schemes — Wound Up Schemes’ in the subject line.

Read further guidance on migrating your pension schemes to the Managing pension schemes service

Help improve the Managing pension schemes service

We are looking to speak with pension scheme administrators and pension scheme practitioners to help improve the Managing pension schemes service. 

By joining our panel, you will have the chance to take part in various user research activities, including one-to-one interviews or testing our designs before they go live. Your contribution will help shape the look and feel of the Managing pension schemes service.

If you are interested in signing up to the panel, you should email pensionsuserresearchrecruitment@hmrc.gov.uk.

Authorised surplus payment charge

The rules for authorised surplus payment charges are set out in section 207 of The Finance Act 2004. This charge arises on the value of the gross amount of the authorised surplus payment and not the amount received by the sponsoring employer on the refund of surplus.

HMRC will update the guidance included in the Pensions Tax Manual at PTM145200 with examples to reflect this.