Scheme Specific TFC and the new Lump Sum Allowance
benjaminfabi
Moderator
Situation:
Client has FP2016.
Has already taken £61,480 of PCLS from £245,920 of total BCEs (i.e. 25%)
Therefore has £312,500 - £61,480 = £251,020 PCLS remaining.
Has £1.24m of uncrystallised DC remaining. This includes £160k in a scheme with £54k SSTFC.
Problem:
Reading the new rules, and as the recent M&G webinar suggested, there is no test against the new LSA from SSTFC funds.
The client wants some cash now and we had been looking at the SSTFC as this met the amount needed and is in a poor value scheme which allows FAD with the residual fund.
As I have understood it, this would use £40,000 of the LSA (25% of £160k), thereby reducing the amount available from the other DC.
However, if he takes £251k PCLS from the other DC fund first, does he retain access to the entire £54k as a SSTFC (which in April 2024 will be increased to £56k by the change in ALSA calc) from that scheme?
This seems too good to be true but if it is it would seem foolish not to take in that order.
Comments
That's how it's working. The new rules have a few too good to be trues in them!
Those with SSPTFC and significant funds should definitely be considering taking it last.
PS the new SSPTFC formula doesn't work - there is a circular reference in it. So it's technically not possible to calculate it post April (at the moment I'm sure they will fix it)
Thanks Les. I think I will suggest taking £180k of PCLS now, just to leave enough LSA for the SSPTFC in case it gets 'ironed out' when they resolve some other drafting errors!
It would be a horrible situation to take the balance to £312.5 and then get told there is nothing available from the scheme with protection.
Hi @les_cameron
Latest pension scheme newsletter contained this statement:
for scheme specific lump sums, changes that will:
provide for a charge to tax where the payment exceeds an individual’s allowances
Given that it also says these amendments will be retrospective to 6 April 2024, am I to be concerned that we will have created a tax charge in the above situation?
Hi
No.
The Regs to fix them have gone through committee and will go live on 18th November. Haven't seen if anything was changed from the draft they issued late July.
The draft regs are still wrong for certain cohorts but people with FP2016 only the drafted regs are working as intended.
So, new regs:
1. will give them the same maximum cash they would have got under the old rules.
2. say that you DO NOT need any LSA to be able to pay a SSPTFC (previous version you needed to have at least a £1)
3. you DO need at least £1 of LSDBA to go ahead with your SSPTFC, and
4. the tax charge only applies to any amount above the available LSDBA NOT the LSA.
5. LSA is reduced by 25% of the amount crystallised
6. LSDBA is reduced by the actual tax free amount paid.
The fact the LSA deduction is higher than the LSA isn't relevant.
We're going to run a webinar on 21st November at 10am to cover the new regs and have a pension Q&A while we're at it. Just waiting on the registration link then we'll bung out the invite.
Thanks, appreciate the response.