New LSA and a disqualifying pension credit
benjaminfabi
Moderator
Hello,
If someone has received a disqualifying pension credit, which in this case is a pre-2006 DB scheme pension in payment that was tested against the LTA in 2008 and used 60% at that time, can they get a transitional tax-free cash certificate?
At the moment, I think there are three possible answers:
Yes
No
We don't know yet
I think it is 'we don't know yet', but it might already be no. I don't see how it can be yes.
A disqualifying pension credit cannot pay tax-free cash (I think that is literally the definition of 'disqualifying' in its name), and therefore my expectation is there will be no one to get a transitional certificate from. I imagine one of the conditions of issuing one will be that you are the administrator of a pension scheme where you paid retirement benefits to the requesting member.
The original scheme, if approached will say something like... "we never paid you any benefits, we transferred you someone else's benefits and so we're not (can't) giving you a certificate"
Anyone had this or care to comment?
Comments
Hi Ben,
Not come across this situation yet and a search doesn't reveal much written on the matter, however I did find disqualifying pension credits referred to in this link from Royal London from 17/01/24.
https://adviser.royallondon.com/technical-central/pensions/benefit-options/Lump-sum-and-lump-sum-death-benefit-allowances-from-April-2024/
A disqualifying pension credit is referred to as a circumstance where a transitional tax-free amount certificate will help the individual, with an example.
However in practice I think it might be difficult to meet the 'complete evidence' requirement to actually get the certificate, as you say.
Thanks Pippa, that's the source I was given that prompted this query - I should have linked it!
I think that's wrong for the reasons I've set out above.
In the case I have, they have enhanced protection and the effect of the credit has cost them over £250,000 in PCLS in the current rules, so if Royal London is correct the client will be very happy.
Yes any LTA used where no PCLS (or PCLS was lower than the standard transitional amount) can get a TTFAC. It's that simple.
Our new tool will do the sums - https://www.mandg.com/wealth/adviser-services/tech-matters/tools-and-calculators/lta-transitional-tax-free-amount-tool
See also Age 75 BCEs, BCE 3, BCE 8.
And DB schemes with less than 25% cash, old plans with GARS - all prime for no PCLS being taken. etc Those who took benefits when LTA was less than £1,073,100.
Technically it's a maybe as the bill hasn't had royal assent but to all intents and purposes it's a yes.
PS evidence should be easy if paperwork is kept - evidence of the %LTA used and evidence of the benefit amount i.e the annuity purchase price or the drawdown designated amount.
Thanks Les,
In all the new rules whenever the term disqualifying pension credit gets used, it is invariably in relation to it being disregarded in calculating the amounts of lump sums available.
I think it will be a nice surprise if this client can get a TTFAC, but I'm not betting on it. I have sent a question to HMRC policy team and I will keep this thread updated.
They can - all BCEs that had no PCLS attached are in scope
The standard transitional amount is 25% of the LTA used % x £1,073,100 - that's a crystal clear.
It is also crystal clear that if you have had less than the standard transitional amount in tax free cash you can get a certificate.
You will not find anything specifically related to your point as it is not necessary.