| Annual Pension (Statutory Money Purchase Illustration) Illustration |
|
| Before 6 April 2024 | From 6 April 2024 |
| 1% | 2% |
| 3% | 4% |
| 5% | 6% |
| 7% | 7% |
Regulation
Regulatory changes to Lifetime Allowance, ISAs and Annual Pension (Statutory Money Purchase Illustration) Illustration rates
4 min read 21 Mar 24
In 2023 the Chancellor, Jeremy Hunt announced some important regulatory changes to the lifetime allowance, ISAs and pensions accumulation rates that could affect your clients. These changes come into effect from 6 April 2024.
Below we take you through the changes, how we’re implementing them and what we’re doing to make sure your clients have the information they need so you can help them to make informed choices.
We’ve updated all documents and forms affected by the changes, and these will be available in the Reference Hub on the platform, from 6 April.
Lifetime Allowance – what’s changing
From 6 April 2024 the existing Lifetime Allowance (LTA) will be replaced by two new allowances – the Lump Sum Allowance (LSA), and the Lump Sum and Death Benefit Allowance (LSDBA). We’ve made all the necessary changes to our processes and literature.
Transitional Tax Free Amount Certificates
A key consideration of the abolition of the Lifetime Allowance (LTA) and its replacement by the Lump Sum Allowance (LSA) and Lump Sum Death Benefits Allowance (LSDBA), is the possibility for some clients to benefit from a Transitional Tax Free Amount Certificate (TTFAC).
You should review your client bank and consider whether any of your clients will benefit from a TTFAC.
If they do, you should contact them so you can assess whether they need to take action before the changes come into effect on 6 April 2024.
Key considerations
Does a client qualify for a Certificate and do they need one? Where a client’s previous vesting of benefits taken together with future benefit values are less than the LTA there’s no need for a Certificate.
Clients should not apply for a Certificate if they believe the transitional TTFAC entitlement would be lower than the standard transitional amount.
They'll need to get a Certificate before the first post-April 2024 benefit crystallisation event, otherwise they'll lose their ability to apply for one.
They should consider applying if they believe it'll secure higher tax free benefits (prior to age 75).
Clients should also consider applying even if they have no available TTFAC entitlement left, because they might still be entitled to LSDBA.
So, the most pressing consideration is where you have a client who hasn’t exercised their full tax free cash entitlement during previous vesting of benefits, but is currently taking regular benefits (eg monthly).
You also need to consider those clients who are planning to vest benefits after April 2024. They might need to get the TTFAC before vesting if they believe they'd benefit, otherwise they might lose out.
Since the announcement, the M&G Wealth Technical team have put together a comprehensive range of resources to explain the changes and how advisers can be ready for them. You’ll find these on the Tech Matters Hub provided by M&G Wealth, along with a new tool to help you work out if your clients could benefit from a TTFAC..
Below is an example of a client who would benefit from a TTFAC.
A client who's a member of a DB scheme accesses their pension with £30,000 income and a pension commencement lump sum of £90,000. Their remaining tax free lump sum allowance would be:
- 20 x £30,000 + £90,000 = £690,000
- 25% of £690,000 = £172,500
- £268,275 - £172,500 = £95,775
But if they apply for a TTFAC, they can show their remaining tax free lump sum allowance is as follows:
- £268,275 - £90,000 = £178,275
How we’re communicating the changes to clients
We’re including this leaflet which explains the changes and how they may impact clients in their:
Pensions Wake Up letters and
as part of their annual review statements for 12 months beginning on 6 April 2024.
ISAs – what’s changing
Investing in more than one ISA
Your clients now have the choice to invest in multiple ISAs of the same type with multiple providers each year, up to the maximum ISA limit, currently £20,000 pa. For example, they may wish to invest some of their ISA allowance with one provider at the beginning of the new tax year in April, a further amount with a different provider later in the year and then the remainder of their allowance with another provider ahead of the end of the tax year.
In addition, two further non-mandatory changes for ISA managers were announced.
ISA transfers
The regulations are changing meaning clients can now make partial transfers of their current tax year’s subscriptions from one provider to another. Previously this was only possible for subscriptions from earlier tax years.
M&G Wealth Platform is not implementing this change meaning we will continue to accept partial transfers in from previous tax years subscriptions but will only accept full transfers in of current year subscriptions. We will continue to only offer full transfers out for previous and current tax year subscriptions.
ISA declarations
The final non-mandatory regulatory change means clients don’t need to make a new ISA declaration when they want to contribute to an ISA that hasn’t had money paid in for a full tax year, provided a declaration has been signed previously.
M&G Wealth Platform will not be adopting this change, so clients in this situation will still need to make a new ISA declaration. However, our existing process only requires an email from you confirming the client wishes to reinstate the declaration. There is no signature required and we will complete the declaration so that there is nothing further for you or your client to do.
How we’re communicating the changes to clients
We’ve updated the client terms and will include a link to these, along with an insert that outlines the changes, in the quarterly valuation statements which will be sent in April.
Change to Annual Pension Illustration growth rates
What’s changing?
From 6 April 2024, the growth rates that are used in the Annual Pension (Statutory Money Purchase Illustration) Illustration will change.
How we’re communicating the change to clients
We’ll let clients know about this change as part of their quarterly valuation statement communication in April 2024.
The information contained in this page is for professional Financial Adviser use only. If you are a private investor, please visit the Private Investor section or contact your Financial Adviser for more information.