This time last year chancellor Jeremy Hunt stood up and announced his intention to abolish the pensions lifetime allowance.
Such an easy thing to say.
But the rule changes needed to make this a reality have been complex, especially for those who are in transition between the two regimes and have taken benefits before April and intend to take benefits afterwards as well.
As we get to grips with the new Finance Act 2024, we are encountering more and more occasions where the legislation doesn’t exactly agree with the spirit of what HMRC is trying to achieve or the guidance it delivers.
Take the transitional tax-free amount certificate.
For those who hadn’t taken their full tax-free cash amount of 25 per cent when they crystallised before April 6 2024, this gives them the ability to opt for a different transitional calculation and so boost their lump sum allowance.
So far, so good. But those who did take their full 25 per cent tax-free cash at a time when the LTA was less than £1,073,100 will find applying for the certificate can boost their lump sum allowance. Perhaps, it could be argued, unfairly.
So, can these people apply for a certificate?
There is nothing stopping them in the legislation – that doesn’t include any condition that the member had to have taken less than 25 per cent of the crystallisation as tax-free cash.
But in guidance HMRC has been firm that those who have already used up their full 25 per cent tax-free cash shouldn’t expect higher allowances.
Ultimately, though, legislation tops guidance.
And if people apply in these circumstances there is nothing legislatively a scheme can do to refuse them.
A similar situation is found with transfer regulations.
When schemes are arranging transfers out, if the receiving scheme isn’t a public sector scheme or master trust, they have to check whether the transfer raises any amber or red flags.
An amber flag could be raised if the receiving scheme includes overseas assets.
As that covers most schemes, it’s no surprise that some ceding pension schemes have stuck their heels in and consistently raise an amber flag on these transfers, sending the member to a safeguarding interview with MoneyHelper.
While this approach is frustrating, the bottom line is the regulations don’t match what the Department for Work and Pensions and The Pensions Regulator intended and have described in their guidance.
Thankfully, the DWP has signalled they will change the transfer regulations so they match their intention and their guidance.
Although the transfer regulations have undoubtedly slowed the transfer process, it hasn’t ground to a complete stop.
But this is partly because not raising an amber flag for a simple transfer to a self-invested personal pension is acting in the best intentions of the consumer and not introducing an unnecessary delay.
