As first announced In the UK’s spring budget on 16th March 2023, the Lifetime Allowance has been abolished effective from 6 April 2024.
Although there is no longer a limit on the amount or the level of pension savings a member can attain (without incurring tax charges), the government have introduced 3 new allowances that restrict the amounts members can withdraw from their pension savings tax-free:
Lump Sum Allowance (LSA)
The LSA is the maximum tax-free lump sum that can be paid from all sources. The LSA is currently set at £268,275 for most members.
Lump Sum and Death Benefit Allowance (LSDBA)
Lump sums payable on death before age 75 will normally be tested against your available LSDBA which is set at £1,073,100 for most members.
Overseas Transfer Allowance (OTA)
The OTA only applies to transfers out to a Qualifying Recognised Overseas Pension Scheme (QROPS). The OTA is currently set at £1,073,100 for most members. If a transfer value paid to a QROPS exceeds the OTA, there will be an overseas transfer charge of 25%.
Under the new regime, members who had Benefit Crystallisation Events before 6 April 2024 will be assumed to have taken the maximum tax-free cash available from the funds they crystallised, reducing the availability of their LSA and LSDBA accordingly. However, in certain circumstances (e.g. if a member has taken less than 25% tax-free cash), members may be able to request an alternative calculation.
We would highlight that some elements relating to the abolition of the Lifetime Allowance are extremely complicated and not all eventualities have been adequately legislated for at present. As always, we would recommend that members seek regulated advice before taking benefits.
Lifetime Allowance Protection
Members who hold Lifetime Allowance protection will in most cases be entitled to an enhanced Lump Sum Allowance and Lump Sum and Death Benefit Allowance in line with the level of their protection.
There is now a deadline of 5 April 2025 for applications for Fixed Protection 2016, Individual Protection 2016 and pension credit/overseas enhancement factors.
Expression of Wish
Members should complete an Expression of Wish Form to nominate their potential beneficiaries, however these are not binding, and ultimately the death benefits payable from a SIPP are payable at the discretion of the Trustees. As they are payable on a discretionary basis, death benefits paid from a SIPP are not normally subject to Inheritance Tax.
There are 2 ways in which death benefits are normally paid from a SIPP:
- Lump Sums.
- Designation to pay income via Flexi-Access Drawdown (or secured via a Lifetime Annuity).
An important distinction that members should be aware of when completing or updating their Expression of Wish is that lump sums can be paid to any beneficiary/dependent of the member (whether nominated or not), however, funds can only be designated to pay income to a qualifying dependent (a person who is eligible to receive the adult dependant’s pension in the event of your death) or to someone expressly nominated by the member to receive benefits under the SIPP following their death.
If you have any questions about these changes or you would like to discuss anything, please feel free to Contact Us; we’re here to help.
