Practical issues for Transitional Tax-Free Amount Certificates

As we are now well into the new Lump Sum Allowance (LSA) and Lump Sum and Death Benefit Allowance (LSDBA) regime, Aries is beginning to receive queries from our members on the practical aspects of providing and using Transitional Tax-Free Amount Certificates (TTFACs).

For this article, I will try to round up some of these practical issues, noting that the queries considered below were raised in connection with a member who had, during the 2022/23 tax year, taken some benefits but still has some uncrystallised benefits remaining under the scheme - a scenario that throws up some interesting points.

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Q: Can this member apply for a TTFAC?

A: Yes. One of the conditions for an application for a TTFAC to be made is that the member must have had a BCE (under any registered pension scheme) between 6 April 2006 and 5 April 2024. As this member took benefits during the 2022/23 tax year, this would have represented a BCE so the member can apply for a TTFAC. Note that the member cannot apply for a TTFAC if they have already had a Relevant BCE on or after 6 April 2024 under any registered pension scheme.

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Q: As the member has already taken benefits under our scheme, can we just issue him with a TTFAC or does he actually have to apply to us for one?

A:? The member would have to actually apply for the Certificate. Paragraph 127 (1) of Schedule 9 of the Finance Act 2024 says that:

A “transitional tax-free amount certificate” is a certificate relating to an individual that—

(a) is issued by a registered pension scheme on an application made in accordance with this paragraph,

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As such, the member must actually apply for a TTFAC – a scheme cannot simply issue one.

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Q: As we know all of the details of the benefits the member has already taken under our scheme, do we need to actually issue the TTFAC to him before relying on it for the purpose of his remaining benefits?

A: Yes. Here we need to look at Paragraph 127 (7) of Schedule 9 of the Finance Act 2024, which says that:

A certificate—

(a) comes into force when it is issued,

Until and unless the TTFAC is actually issued, then, it is not in force and cannot be relied on.

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Q: Do we have to ask the member for details of all other pensions in payment and the amount of PCLS etc taken, or can he apply to other pension schemes for a transitional certificate?

A: When a member applies for a TTFAC, that Certificate must be “global” in the sense that it must reflect all of the benefits that the member has taken under all registered pension schemes. It is not the case that the member applies to each scheme for a TTFAC in respect of just the benefits they have taken under that particular scheme.

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Q: If we do have to take account of all benefits taken, including under other schemes, what information would we need about those other benefits?

A: To apply for a TTFAC, the member must provide the scheme to which the application is made with “complete evidence” relating to their previous benefits. “Complete evidence” is defined in Paragraph 129 (4) of Schedule 9 of the Finance Act 2024 as being:

“Complete evidence”, in relation to an individual's lump sum and death benefit transitional tax-free amount, means evidence of—

(a) each lump sum (if any) to which the individual has become entitled, and

(b) each lump sum death benefit (if any) that has been paid in respect of the individual,

that is comprised, or any part of which is comprised, in the individual's lump sum and death benefit transitional tax-free amount.

?Note that the legislation here refers to the benefits that need to be taken into account for the LSDBA rather than the LSA simply because any benefits that would impact on the available LSA would also impact on the available LSDBA, so by just referring to the LSDBA position, the LSA position is automatically captured too.

The PTM considers what constitutes “complete evidence” and HMRC also touched on this in Question 61 of the FAQs issued with Pension Schemes Newsletter 159.

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Q: Assuming that we do issue the member with a TTFAC, does the member then need to provide us with a copy of that TTFAC when they claim their remaining benefits?

A: No. Here we need to look at Paragraph 125 (4) of Schedule 9 of the Finance Act 2024, which says that:

(4) But sub-paragraph (3) [the default calculation for establishing the available LSA] does not apply if, on the occurrence of the relevant benefit crystallisation event, a transitional tax-free amount certificate is in force in relation to the individual.

If the scheme under which benefits are being taken actually issued the TTFAC, then that scheme would already know that a TTFAC is in force, thus ‘ticking the box’ required under Paragraph 125 (4) above.

For completeness, the scheme would be wise to ask the member to confirm that the TTFAC has not been cancelled by any other scheme.

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Q: Is there a standard form that a TTFAC should take?

A: No.? at Paragraph 127 (5) of Schedule 9 of the Finance Act 2024 says that:

A certificate may be in such form as the scheme administrator may determine and may, in particular, be incorporated into any other document that is given to the applicant by the scheme.

Aries Insight?provides comprehensive and detailed guidance on the application of the TTFAC provisions, as well as insight into the meaning and impact of UK pensions regulation and clear guidance on the practical implications for pension providers, trustees, administrators and consultants.? If you are not already an Aries member and would like to find out more about what Aries Insight can offer you, then please drop me a mail at [email protected] or give me a call on 01536 763352.

Please note that?we are not lawyers or financial advisers.?The information above sets out our best understanding of the legislation and how it applies, but should not be taken as constituting legal or financial advice.