2024 Pension Changes: How New Allowances Affect Your Retirement

The 2024 Pension Changes: How New Allowances Affect Your Retirement, particularly through the abolition of the lifetime allowance and its substitution with new allowances, are significant but will unlikely impact most clients unless they possess significant sums in their pension pots. If you have taken benefits prior to 6th April 2024 less than the maximum 25% available, a transitional tax-free cash certificate could entitle you to a larger lump sum allowance. The decision of whether or not to apply for a certificate is complicated and irreversible. This decision also needs to be actioned before taking any further tax-free lump sum post 6th April 2024.

Here is a brief overview of the principal points that might be pertinent to our clients:

Abolition of the Lifetime Allowance and Charge: As of 6 April 2023, the lifetime allowance charge was abolished, as incorporated in the Finance (No.2) Act 2023. For the tax year 2023/24, despite the continuation of lifetime allowance assessments at benefit crystallisation events, the lifetime allowance itself will commence its phase-out from 6 April 2024.

New Allowances Superseding the Lifetime Allowance: Commencing from 6 April 2024, the lifetime allowance will be superseded by three new allowances:

  • Lump Sum Allowance: £268,275, capping the amount of tax-free benefits payable.
  • Lump Sum and Death Benefit Allowance: £1,073,100, likewise capping tax-free benefits.
  • Overseas Transfer Allowance: £1,073,100, applicable to transfers to qualifying recognised overseas pension schemes.

Assessment Against New Allowances: These allowances will be assessed when benefits are disbursed, potentially higher if the individual benefits from lifetime allowance protection. This implies that for those with high-value pensions, these alterations are quite significant, while for the majority, this scenario is unlikely to apply.

Taxable Lump Sums and Death Benefits: The methodology surrounding the calculation of the tapered annual allowance remains constant. Taxable lump sums and death benefits continue to be part of the calculation, although the legislation now references a different segment of the taxation laws.

Relevant Benefit Crystallisation Events (RBCEs): Post-5 April 2024, these events, essential for the application of the lump sum allowance, have been redefined. They now exclusively pertain to the tax-free component of the benefits being claimed, with no RBCEs for taxable pension income.

Tax Consequences of Exceeding Allowances: Any sums surpassing the new allowances will be liable to income tax at the individual’s marginal rate. This also applies to the ‘income’ portions of any benefits claimed, such as annuities or income from a drawdown plan.

Lifetime Allowance Protections: Several forms of protection, often safeguarding the amount of tax-free cash payable to an individual, remain applicable even following the lifetime allowance’s removal.

Death Benefits and Overseas Transfers: The regulations governing the disbursement of death benefits remain largely unaltered, but tax-free lump sum benefits are now assessed against the deceased’s lump sum and death benefit allowance instead of the lifetime allowance. The overseas transfer allowance becomes relevant for transfers to qualifying recognised overseas pension schemes (QROPS) from 6 April 2024, with a potential 25% charge on benefits exceeding this allowance.

For clients whose pension savings do not surpass these new allowance thresholds, the changes are likely to have minimal immediate impact. Nevertheless, it is vital for individuals with or approaching such levels in their pensions to be informed and perhaps revise their pension planning strategies accordingly.

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Should you wish to explore this topic further, please email us at info@bee-sure.co.uk, complete a contact form on our website, or phone us on 0333 305 6692.

Please Note

This article “2024 Pension Changes: How New Allowances Affect Your Retirement” is intended for general information purposes only and does not constitute advice. The information is directed at retail clients only.

We advise not to take any actions based solely on the information provided in this article. All content is based on our interpretation of legislation, which is subject to alteration.

Reference: 2024 Pension Changes: How New Allowances Affect Your Retirement

https://adviser.royallondon.com/technical-central/pensions/benefit-options/Lump-sum-and-lump-sum-death-benefit-allowances-from-April-2024/#:~:text=For%20example%20the%20two%2Dyear,rather%20than%20the%20lifetime%20allowance.

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