Breaching LSA due to retrospective changes

LouiseD

Hiya
A couple of questions if anyone has come across this.
A client has breached their LSA (no TTFAC applied for as there was minimal difference). The breach was caused by a combination of two things. Having methodically prepared the remaining LSA figures -

1. We applied for all remaining Tax free cash to be paid, on the basis of info we had at the time in Feb 25, the value of the pot increased slightly prior to the actual sale going through.
2. There was a subsequent change reported by the administrators on a previous DB taken due to GMP equalisation which increased the LTA used.

The breach is around £1,000 so not huge based on the above it appears this might be an issue which will come up again.

When we are aware all the tax free cash has been used, as it has for this client, does anyone know if its just a case of instructing the provider to switch the remaining Uncrystallised Pot to their Crystallised Pot?

Thanks for any input

Louise

benjaminfabi

Ignoring the breach issue, my general stance on operational management of pension funds when the LSA has been used is this (assuming the platform allows it):

1. If available LSA >25% of funds in the pension then crystallise the whole pot
2. If available LSA <25% of funds in the pension, only crystallise LSA * 4 and leave the balance uncrystallised.

I recommend this because you can't rule out that a future government would increase the LSA. In pathway 2 above if you crystallise the whole pension and take the maximum LSA, instead of only what's needed to access the available 25%, you then have no remaining uncrystallised funds to take an LSA from if it increases.

Yes, arguably any increase might then introduce all manner of transitional mechanisms rendering this approach futile. But if you do option 1, you're more likely to be restricted.

les_cameron

I favour option 2 above. There is no current upside or downside to crystallising it all so what is the point of doing it when a) there could in theory be more LSA later and b) crystallised death benefits a have been treated more harshly in the past.

Note the extra PCLS is probably an unauthorised payment, you should tell the scheme that paid it what has happened as if it actually is an unauthorised payment it would need reported by both the scheme and the member then a good faith defence then raised. But if it is the scheme may just fix it by accepting the money overpaid back. If it is over the LSA but they manage to find a reason it is authorised (which I don't think they will find) the excess over LTA needs income tax paid on it.

LouiseD

Thanks for your responses. This is very helpful. Will relay this information this morning to the Team to avoid this happening again. What happened to Pensions Simplification?
Louise