Trustees can “uncross their fingers” as the latest government regulations have brought clarity to the new pension tax regime, LCP has said.

The two pieces of legislation, The Pensions (Abolition of Lifetime Allowance Charge etc) (No. 2) Regulations 2024 and The Pensions (Abolition of Lifetime Allowance (LTA) Charge etc) (No. 3) Regulations 2024 are set to come into force on 18 November 2024 and cover the the new pension tax allowances for tax-free lump sums.

This comes after Chancellor, Jeremy Hunt, previously announced plans to abolish the LTA in his 2023 Spring Budget, with the Finance Act 2024 delivering an amended pensions tax regime, effective from 6 April 2024, which replaced the LTA on most pension and lump sum benefits with two new allowances on most lump sum benefits.

Industry experts warned at the time that this was a "rushed job with errors and omissions coming to light, resulting in HMRC having to now engage in a patch and mend job through regulations that are promised".

LCP agreed that the abolition of the LTA was "rushed" though ahead of the general election, arguing that what should have taken three years was pushed through in one.

The firm said that as a key pillar of the pensions tax regime, removing the LTA from the statute book and putting in place the new mechanisms needed to maintain the ability to take tax-free lump sums on retirement and death was a "major task". 

However, LCP partner and tax expert, Alasdair Mayes, suggested that the new government legislation will put the new regime on a “firmer footing” and allow trustees to have confidence in the sums they are paying out to members, meaning that retirements and transfers that have been on hold since April can now be processed. 

Mayes explained: “Due to the speed that these changes were pushed through it’s not surprising that there were lots of mistakes. Finding the issues and resolving them has been a lot of work for HMRC and the industry. 

“In the meantime, retirements for some members have had to be put on hold to ensure their ability to take tax-free cash was not restricted by glitches in the legislation.”

He also suggested that the trustees that “crossed their fingers and paid lump sums that were technically ‘unauthorised’ under the flawed legislation on the promise that HMRC would fix the issues can now uncross them”. 

“The key lesson from all this is that the pensions system requires stability,” he added.

“This was legislation to abolish the lifetime allowance and yet it was still hard to get right.

“Any government who wants to make changes to pensions tax need to make sure any changes are considered and planned, with plenty of time for implementation.”

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