New Regulations were laid before Parliament on 14 March which address various matters in relation to the abolition of the lifetime allowance (LTA) and which will have effect from the tax year 24/25 onwards.

The Pensions (Abolition of Lifetime Allowance Charge etc) Regulations 2024 (the “Regulations”) introduce a number of further provisions in relation to the abolition of the LTA, the key one from a legal perspective (and probably the one that will receive the most industry attention) being a widely hoped-for statutory override where scheme rules include a cap on benefits linked to the lifetime allowance. As the measure is temporary, schemes rules should still be reviewed and decisions taken on whether to make amendments, but there is helpfully more time to do so.

Regulation 4 of Part 2 of the Regulations amends Schedule 9 to the Finance Act 2024 in a number of ways. Among the amendments are some important amendments to paragraph 132, now renamed “Modification of scheme rules”:

  1.  The existing statutory override of scheme rules to interpret references to entitlements to lifetime allowance excess lump sum as references to its replacement, the pension commencement excess lump sum (PCELS), has been extended. It now includes any provision relating to the payment of a PCELS, which would cover discretionary payments.
  2. The new Regulation also introduces a new statutory override to retain the effect of any provision of scheme rules that caps benefits by reference to the old lifetime allowance regime. It does this by providing that none of the amendments made by schedule 9 to the Finance Act 2024 to the pension tax code will affect the “interpretation of any  relevant rule of a registered pension scheme" . A “relevant rule” is defined as "a rule which imposes a limit on the amount of a benefit payable under the scheme to, or in respect of, a member by reference to the member’s lifetime allowance, the standard lifetime allowance or the lifetime allowance charge.”
  3. It then goes on to state that both elements are temporary, as the relevant paragraph “ceases to have effect at the end of the tax year 2028-29.”

Regulation 4(24) also inserts a helpful new “continuity of law” clarification into Schedule 9 to more widely clarify the treatment of any other provision of the “pensions tax code” (to include provisions under Part 4 of the Finance Act 2004 and any regulations made under it) that is repealed by or under the amended Schedule 9 as a result of these lifetime allowance abolition changes.   

For overview of the changes being made to the lifetime allowance regime and its replacement, and actions to take, see our article here.

Other notable provisions introduced by the Regulations cover:-

  • The removal of the "permitted maximum" from the calculation of a pension commencement excess lump sum (PCELS) and confirmation that a PCELS may only be paid when an individual has no available lump sum and death benefit allowance (LS&DBA), as well as no available lump sum allowance (LSA) – this was a point that caused much consternation within the industry when the draft Finance Bill provisions were first tabled as they appeared to inadvertently create a more restrictive position than previously applied to the lifetime allowance excess lump sum.  The requirement for a PCELS to be paid only in connection with the commencement of a pension has however been retained.
  • The position regarding the overseas transfer allowance in respect of members who have used part or all of their lifetime allowance before 6 April 2024.
  • Introduction of a new paragraph which makes provision about entitlement to lump sums before 6th April 2024 where the sum is paid on or after that date (i.e. effectively they are to be disregarded for the purposes of determining the lump sum’s tax status).
  • Clarification that the requirement to submit a new “event 24” report by scheme administrators to HMRC will only be required where a payment exceeds a member’s LSA or LS&DBA. 

Overall the Regulations appear to provide a number of welcome clarifications around some practical implications on the ground of the abolition of the LTA. In particular, the new temporary statutory override will be greeted with relief by the industry. It is likely that many schemes (with input from their advisers) are currently undertaking (amongst many other related LTA abolition actions) rule review exercises to establish whether their rules will be amended to update references to lifetime allowance excess lump sums, retain LTA-related benefit caps, or tidy up other references to the old lifetime allowance regime once the LTA is abolished.  This extended override will help with those concerns and the time limit on its use is sufficiently long that it can be relied on for a few years yet, giving time to make Rule changes.  

At this stage it is not known whether any overriding powers will be introduced to facilitate the permanent retention of the old limits in scheme rules. 

Finally, also on this topic, HMRC has published yet another update to its Lifetime Allowance Guidance Newsletter on Friday to add further information to its frequently asked questions – link here Lifetime allowance guidance newsletter: March 2024 - GOV.UK (www.gov.uk).

If you would like to discuss this and how it impacts your scheme,  please contact your usual Burges Salmon contacts or Alice Honeywill.

This blog was written by Mairi Carlin and Alice Honeywill