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Are you saving enough?
Find out how much your lifestyle could cost when you retire and how to work out if your savings are on track.
Are you saving enough?Changes to tax limits and how they affect you
The Lifetime Allowance (LTA) will end in April 2024 and will be replaced by new allowances. Although not everyone is affected by the change, this article explains the developments and what they might mean for you.
The LTA was the maximum amount you could build up in all of your pension savings before you paid additional tax.
But from 6 April 2024, the government is replacing it with 3 new allowances.
It’s a big change and means that
Railpen, the administrator of the Amey OSPension Scheme, may take a little longer to reply to queries as it implements things. We really appreciate your patience and understanding with this.
What are the new allowances?
There are 3 new allowances and they limit the total amount of tax-free lump sums people can get from pension savings. They’re called:
- the Lump Sum Allowance (LSA)
- the Lump Sum and Death Benefits Allowance (LSDBA); and
- Overseas Transfer Allowance (OTA)
The Lump Sum Allowance (LSA)
The LSA is a cap on the amount of tax-free lump sum you can receive from all your pension arrangements. Lump sums paid under this allowance are called Pension Commencement Lump Sums (PCLS).
The most you can take as a tax-free lump sum from all your pension arrangements is £268,275, unless you hold a valid LTA protection, in which case it will be 25% of the value of the protected amount. If the only pension arrangement you are a member of is the Amey OS Pension Scheme, you only need to consider whether the total tax-free lump sum you want to take from all of your scheme pension benefits is more than the limit. Any lump sum that is paid in excess of the available LSA is liable for tax at your marginal rate of income tax. This excess amount is called a Pension Commencement Excess Lump Sum (PCELS). Alternatively, the excess can be converted to additional annual pension.
If you have previously taken pension benefits from either the Amey OS Pension Scheme or another scheme, it will be taken into account and will reduce the available LSA for future retirements.
The Lump Sum and Death Benefits Allowance (LSDBA)
This is the cap on the tax-free lump sum that can be paid to, or in respect of, a member of a pension scheme. If the value of lump sum death benefits means that the LSDBA will be exceeded, the excess will be taxed at the marginal rate of income tax of
the person receiving it.
The standard LSDBA is £1,073,100. But if you hold a valid LTA protection, it will be the value of the protected amount.
Overseas Transfer Allowance (OTA)
This only applies to transfers out to a Qualifying Recognised Overseas Transfer Scheme. The OTA limit will be £1,073,100, unless you hold a valid LTA protection. If the transfer value exceeds the OTA, there will be an overseas transfer charge (OTC) of 25%.
How will this affect you?
Not everyone will be affected by this change. If you retired, or took benefits from another pension arrangement, before 6 April 2024 the LTA still applies for those benefits. There may be delays to some queries as Railpen makes these new changes.
Do you need to do anything?
If you are retiring, Railpen will send you more information with your retirement options. It’s important that you read this carefully and complete all forms that have been sent to you.
If you are requesting pension benefits after 5 April 2024 and have already taken pension benefits, you may want to consider applying for a transitional tax-free amount certificate. This could be used to prove that you did not take the maximum amount of tax-free lump sum when you took your benefits before 6 April 2024. You might want this if you are close to the LSA and have previously taken a lump sum of less than 25% of the LTA.
It’s important to note that you would need to apply and receive the certificate before you take your first lump sum amount on or after 6 April 2024.
This certificate must then be either issued or refused by the pension provider within 3 months of the application date.
Matt Riley
Manager
Matt joined Zedra Governance Limited (formerly PTL) in January 2008 having previously worked for Mercer Limited, Hazell Carr and Prudential.
As a Manager for the company's Birmingham Office, Matt’s responsibilities include working closely with Client Directors and individually liaising with Employers, Trustees and Members to ensure the smooth running of their pension schemes. Matt’s current portfolio of clients covers ongoing, paid-up and winding-up schemes. In addition, Matt has experience of schemes that have transferred or are in the process of transferring to the Pension Protection Fund and Financial Assistance Scheme. Matt also works closely with clients in relation to risk registers and internal controls.
Matt particularly enjoys resolving issues in a fair and pragmatic way ensuring that the right result is reached for the member or employer.
Sam Burden
Client Director
Sam Burden joined Zedra Governance (formerly PTL) in 2022. He is an Accredited Professional Pension Trustee (AMAPPT) and an Associate of the Pensions Management Institute (APMI)
Sam has more than 25 years’ experience in the pensions industry gained with WTW, KPMG, and Standard Life working with a wide range of pension schemes and sponsoring employers. His trustee appointments include DB, DC and hybrid pension schemes and he has experience of handling a broad range of projects relating to the management of pension schemes.
Beyond his pensions experience Sam is a former Birmingham City Councillor where he chaired the audit committee and a current charity trustee.
Payam Kazemian
Client Director
Payam Kazemian joined Zedra Governance Limited (formerly PTL Governance Limited) in 2021. He is an Accredited Professional Pension Trustee (AMAPPT) and an Associate of the Pensions Management Institute (APMI).
Payam has more than 17 years of experience in the pensions industry. Through his current role as a professional trustee, as well as previously as a pension’s de-risking and investment structuring expert at financial institutions including Goldman Sachs and Deutsche Bank, he has had overall responsibility for creating investment, de-risking, journey planning, and governance solutions for a wide range of UK DB pension schemes. He currently holds a number of board positions (as Chair of Trustees) and sole trustee in his professional trustee capacity. Payam has been involved with a number of pensions projects including pensions buy-in, pensions buy-out, GMP equalisation, investment strategy reviews, and dialogue with the pensions regulator. Payam looks to create and believes in a collaborative relationship between the sponsor, the trustee, and all other parties involved as this results in best member outcomes and helps deliver pragmatic solutions for scheme. Aside from his pensions experience, Payam holds a Ph.D. in Materials Science from the University of Cambridge.
