Scheme-specific lump sum protection — calculating a member’s entitlement
LiliS
Member
In respect of scheme specific lump sum protection and calculating the benefit, Newsletter 158 states that "Regulation 3 of The Pensions (Abolition of Lifetime Allowance Charge etc) Regulations 2024 made changes to paragraph 24 of Schedule 36 to FA 2004 and it provides the formula to calculate this, but it is wrong"
Can anyone find online or explain what is precisely wrong with this formula and why does it double count certain benefits and why it does not operate as intended?
I am trying to understand if client will have any detriment if they do not wait until legislation is accurate and take it now (they really need the money asap) and tried to find the correct ( I think I found it) and incorrect formula, but I lost the will to live going through all this: https://www.legislation.gov.uk/uksi/2024/356/made
Any help much appreciated!
Comments
The formula has a circular loop - you need to know the amount of tax free cash to be able to calculate the tax free cash. I explained it in or SSPTFC page. https://www.mandg.com/wealth/adviser-services/tech-matters/pensions/lump-sum-options/scheme-specific-protected-tax-free-cash
The regs you have quoted were supposed to fix the problem but they didn't, so we await further regs.
It is technically possible to calculate the result of the formula by trial and error. It will give a higher result than the policy intent.
The intent is the calculation will work like the pre 24 one but assuming there is no LTA protections for anyone.
You should ask the provider what they propose to do as I believe many schemes will calculate and pay it based on the policy intent and ignore the newsletter.
If you take benefits you will only get 25% PCLS unless the scheme will pay out on the policy intent so there will be a bit of detriment based on the numbers.
Thank you, Les!
You explained it so well and yes, good idea about asking the provider- I will do just that!