United Kingdom: Pensions update - Legislation implementing the abolition of the lifetime allowance

From 6 April 2024 receives Royal assent, but further secondary legislation remains outstanding

In brief

The Finance Act 2024, which contains provisions implementing the abolition of the lifetime allowance from 6 April 2024, has become law. This will be relevant for both employers and trustees, particularly in relation to high earners.


Contents

In more detail

The removal of the lifetime allowance from the pensions tax framework forms the second phase of changes associated with the Chancellor's announcement in the Spring Budget 2023 that the lifetime allowance would be abolished.

Two new allowances will be introduced from 6 April 2024 concerning the maximum lump sums that can be taken tax-free. Further details about these, together with other related changes and points for trustees and employers to consider, can be found here.

We are expecting HMRC to publish Regulations to address a number of issues which have been identified with the provisions in the Finance Act 2024, including in relation to the circumstances in which a pension commencement excess lump sum (PCELS) can be paid. A PCELS is a new type of authorised payment which is being introduced from 6 April 2024. At the date of writing a draft of these Regulations has not yet been published, but we are expecting these to be in force from 6 April 2024.

The fact that we still do not have the final form of legislation for some of the changes which are being implemented creates an element of uncertainty. From a Trust Deed and Rules perspective, however, we do not think that the outstanding secondary legislation should prevent schemes from reviewing their Trust Deed and Rules in order to determine what amendments will need to be made.

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