When is a lump sum disclosure not a lump sum disclosure?
Pensions & benefits Policy & regulation
The new tax-free pensions lump sum regime has some challenging disclosure requirements for trustees and their administrators – trustees and pensions managers should be asking their administrator whether they are going to be ready for the changes on 6 April 2024.
In my third blog on the new tax-free pensions lump sum regime I thought it would be helpful to highlight how unintuitive the new disclosure requirements are.
Many schemes meet their disclosure obligations through a short note in annual pension increase letters or P60s, which are often issued in April or May and so will fall under the early days of the new regime.
Under the old Lifetime Allowance regime, administrators had an obligation to remind members annually of the percentage of the Lifetime Allowance they had used up within the scheme. From 6 April 2024 there will be an obligation to provide details of the tax-free lump sum that the member took.
Simple? As ever in pensions tax, there is a catch or two.
For tax-free lump sums taken from 6 April 2024, generally, yes. The figure to disclose in most cases is simply the lump sum paid. Exceptions apply for some schemes, but not many.
However, for tax-free lump sums taken before 6 April 2024, generally the figure to disclose is not the lump sum taken. Administrators will need to calculate an “assumed lump sum” and disclose this instead. The calculation is different for members that had Lifetime Allowance protection. And for members who hold a “transitional lump sum certificate” (see my previous blog) you don’t disclose the assumed lump sum, you have to disclose the actual lump sum. Oh, and HMRC confirmed the other week that these disclosure requirements no longer stop at age 75. So, there’s plenty for administrators to get their heads round.
At LCP we have been busy building all this into our systems and processes, as for some schemes we want to be able to satisfy the disclosure requirements in April, shortly after the new regime comes into force. If you would like to talk though what it means for you, do let us know.
