Question:

Should I consider applying for a transitional tax-free amount certificate (TTFAC) for my client who is over age 75 and looking to take PCLS?

Answer:

In a word, yes. As a general rule, it is always a good idea to consider whether a TTFAC should be applied for before the first Relevant Benefit Crystallisation Event (RBCE) occurs post 6 April 2024. This is because a TTFAC can only be applied for before the first RBCE. For clarity, an RBCE can be any of the following:

• Pension commencement lump sum (PCLS)
• Stand-alone lump sum
• An uncrystallised funds pension lump sum (UFPLS)
• Serious ill-health lump sum
• Any pension lump sum death benefit payment other than:
  • Charity lump sum death benefit
  • Trivial commutation lump sum death benefit
  • Lump sum death benefits paid in respect of pension rights crystallised before 6 April 2024.

The taking of income from an existing drawdown arrangement or becoming entitled to a DB scheme pension are not RBCEs in their own right.

More information on whether a client should consider applying for a TTFAC can be found HERE

There is an additional consideration for clients that reached age 75 before 6 April 2024 and this is due to the fact there may have been Benefit Crystallisation Events that occurred at age 75, such as:

• BCE 5: Defined benefit test at age 75 (uncrystallised rights)
• BCE 5a: Drawdown funds at age 75 (fund value less benefits designated)
• BCE 5B money purchase funds at age 75 (uncrystallised rights)

If any of these events occurred, they could have used the Lifetime Allowance. However, none of these events will have involved the payment of tax-free lump sums. Without a TTFAC, this could reduce the availability of PCLS as it will affect the available Lump Sum Allowance (LSA) and Lump Sum and Death Benefit Allowance (LSDBA). For example:

Let’s say Abbey had an uncrystallised fund of £900,000 when she reached age 75 on 2nd February 2024. Abbey has had no other crystallisation events and has no LTA protection. When she reached age 75, BCE 5b determined that she used 83.86% of her Lifetime Allowance. In September 2024, Abbey would like to access some of her tax-free cash. Without a TTFAC, the available LSA and LSDBA are calculated as follows:

Lump Sum Allowance

£268,275 - ((£1,073,100 x 83.86%) x 25%) or £268,275 - £224,975 = £43,300

Lump Sum & Death Benefit Allowance

£1,073,100 - £224,975 = £848,125

As the PCLS permitted maximum is the lower of 25% of the amount coming into payment – the remaining LSA or the remaining LSDBA – the maximum PCLS without a TTFAC would be £43,300. If Abbey applies for a TTFAC before her first RBCE, the LSA and LSDBA will be restored to their original values of £268,275 and £1,073,100 respectively.

Finally, just to re-iterate, the TTFAC must be applied for before the first RBCE, so this should be considered for any client accessing pension benefits for the first time after 6 April 2024.

Important information

This article provides information and is only intended to provide an overview of the current law in this area and does not constitute financial advice, tax advice or legal advice, or provide any recommendations. The value of benefits depends on individual circumstances. The minimum age clients can normally access their pension savings is currently 55, and is due to rise to 57 on 6 April 2028, unless they have a lower protected pension age. Different options may have different effects for tax purposes, different implications for pension provision and different impacts on other assets and financial planning.

Issued by Financial Administration Services Limited, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited.

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