The lifetime allowance (LTA) was abolished with effect from 6 April 2024.  On 9 June 2024 the FT reported that it had been told by "allies" of Rachel Reeves that Labour had abandoned plans to bring back the LTA.  There has been no official announcement from Labour on this point.  The Labour party manifesto did not mention the LTA.

The Pensions (Abolition of Lifetime Allowance Charge etc) Regulations 2024 came into force on 6 April 2024 and make some important changes relating to abolition of the lifetime allowance (LTA).  These include: 

• a statutory override to retain in scheme rules any limits on benefits that have been drafted by reference to the LTA.  In such circumstances, references to the LTA or LTA charge have the meaning that they had immediately before 6 April 2024.  The override ceases to have effect at the end of tax year 2028-29;
• removal of the limit contained in the original draft of the legislation on the amount that can be paid as a pension commencement excess lump sum (the type of lump sum that broadly replaces the lifetime allowance excess lump sum);
• providing that where a lump sum is paid on or after 6 April 2024, but the member became entitled to the lump sum before that date, the pre-6 April 2024 tax rules govern the treatment of the lump sum; and
• changes to when lump sums need to be reported to HMRC due to exceeding the relevant allowances.

One consequence of the latest round of amendments relates to the provision for a reference in scheme rules to a lifetime allowance excess lump sum to be treated as a reference to a pension commencement excess lump sum. That provision will now cease to have effect at the end of tax year 2028-29 rather than applying indefinitely.  We suspect that this is a drafting error.

Another set of regulations is due to be made with retrospective effect from 6 April 2024 covering various points mentioned in HMRC newsletters, plus possibly other points from HMRC's running list of issues raised by the pensions industry.  HMRC has confirmed in its Pension schemes newsletter 161 that the government plans to introduce the necessary regulations as soon as the parliamentary timetable permits after the summer recess.

HMRC Pension scheme newsletters on LTA issues

HMRC's Pension scheme newsletters 157, 158 and 159 have clarified various points relating LTA abolition.  These include:

Newsletter 159

• The tax treatment of benefits where the benefit is paid on or after 6 April 2024 but relates to an event which occurred before that date.
• Clarification of when a pension commencement excess lump sum can be paid.
• Confirmation that the policy intention is not to reduce individuals' entitlements to higher tax free lump sums where they hold valid protections.  The newsletter says that some elements of the legislation do not fully operate as intended and will be modified.
• Transitional provisions do not fully operate as intended regarding the question of how much of a member's existing allowance is to be treated as having been used up as a result of a lump sum payment before 6 April 2024.  This will be corrected through future regulations.
• Where a member requires a payment which is affected by further regulations but cannot wait for their introduction because of financial hardship, the newsletter suggests schemes contact HMRC directly at ltaadministration@hmrc.gov.uk and putting "LTA further regulations – impacted member" in the subject line.

Newsletter 158

• The further set of regulations to be made relate primarily to specific protections or to individuals who plan to transfer their pension savings to a qualifying recognised overseas pension scheme (QROPS).  Members may need to wait until the regulations are in place before taking or transferring certain benefits.
• Clarification of the rules relating to members who take some benefits before and some after 6 April 2024.
• The government will make regulations requiring transferring schemes to provide information to receiving schemes regarding how much of a member's fund crystallised before/after 6 April 2024.  This information is needed for calculating how much lump sum and death benefit allowance an individual has available.
• The government will bring forward legislation so that individuals with enhanced protection (EP) can carry over the benefit of their protection when taking a transfer value.  The newsletter suggests members with EP may wish to delay taking a transfer value until the legislation is in force.
• The government will amend the legislation to ensure it operates as intended in relation to transfers to qualifying recognised overseas pension schemes (QROPS).  

Newsletter 157 contains a series of FAQs relating to the tax regime post-LTA abolition as does HMRC's March 2024 Lifetime allowance guidance newsletter.

Our thoughts

SIPP and SSAS providers should ensure their standard documentation is up-to-date and that their processes reflect the abolition of the LTA.  The regulations to resolve many known issues with the existing legislation have not yet been finalised, and this clearly puts SIPP and SSAS providers in a difficult position.  Providers need to monitor ongoing developments to ensure they are up to speed on the current position.