Providing one-off ‘LTA percentage used’ statements in 2024 / 25

I was recently asked a question about the requirement to provide certain members with a one-off ‘Lifetime Allowance (LTA) percentage used’ statement during the 2024 / 25 tax year.

By way of background, this requirement arises under Paragraph 130 of Schedule 9 of the Finance Act 2024. Broadly, it requires that scheme must provide a one off ‘LTA statement’ to:

(a) any member of the scheme—

(i) in relation to whom one or more benefit crystallisation events (BCEs) occurred before 6 April 2024, and

(ii) who on that date does not have an actual (as opposed to prospective) entitlement to be paid a pension, or

(b) the personal representatives of a member within paragraph (a) who has died.

before the end of the 2024 / 25 tax year.

The second limb of the requirement in (a) above is intended to capture members who do not have an ongoing entitlement to a pension under the scheme and who, therefore, would not receive an annual ‘LTA percentage used’ statement (now, of course, an annual Lump Sum Allowance (LSA) and Lump Sum and Death Benefit Allowance (LSDBA) amounts used’ statement) as required under Regulation 14 of the “Provision of Information” Regulations.

The question that I was asked was two-fold.

Which members are captured by this requirement?

I was able to explain that, as originally drafted (see above) this requirement caused some consternation because, taken literally, it could require a one-off statement to be provided to all individuals who have had a BCE under the scheme and do not have an ongoing entitlement to a pension. A common example used to illustrate the issues this could raise is a member who, back in, say, 2010, transferred all of their benefits out of the scheme to a QROPS.

Q: did this member have a BCE under the scheme before 6 April 2024?

A: Yes.

Q: On 6 April 2024, did this member have an actual entitlement to be paid a pension under the scheme?

A: No.

Conclusion: the scheme must provide this member with a one-off statement!

Helpfully, however, HMRC confirmed in Question 92 of their LTA FAQ guidance that this is not their intention:

Question 92 — Does the one-off reporting exercise required by paragraph 130 of Finance Act 2024 include individuals who are no longer members of the pension scheme?

No. This reporting requirement only applies to individuals who still have rights remaining within the pension scheme. For instance, therefore, it does not include individuals who have taken all their benefits as an UFPLS or who have transferred all their rights under the scheme to a qualifying recognised overseas pension scheme (QROPS).

HMRC have since circulated draft Regulations which, if brought into force as drafted, would ensure that the legislation reflects this position by importing the Finance Act 2004 definition of ‘member’ into Paragraph 130 of Schedule 9 of the Finance Act 2024 (thus limiting the ’one off statement’ requirement to active, deferred, pensioner and pension credit members of the scheme).

Is a one-off statement required where, before the statement is issued, the member has taken all of their remaining benefits under the scheme?

This second part of the query is relevant because anecdotal evidence suggests that schemes are tending to kick the ‘one off statement’ requirement down the road as far as possible (which is fair enough – schemes are still getting to grips with all the other Finance Act 2024 changes).

This part of the query can be highlighted by considering a member who in, say, 2022, took part of their funds as an Uncrystallised Funds Pension Lump Sum (UFPLS), but at 6 April 2024 still had some uncrystallised funds remaining. If they then took all those remaining funds as a further UFPLS on, say, 1 June 2024 – before the scheme has issued the ‘one-off statement’- is the scheme still required to issue the ‘one-off statement’?

In this situation, the answer is ‘yes’ (see question 91 of HMRC’s LTA FAQ guide).

Going back to the Paragraph 130 requirements (even with the proposed introduction of the definition of ‘member’):

- this member did? have a BCE before 6 April 2024; and

- was a member of the scheme on 6 April 2024 (by virtue of the remaining uncrystallised rights on that date); and

- did not, on that date, have an actual entitlement to the payment of a pension under the scheme.

This could result in a rather odd situation in that, for the member considered above, the scheme will need to provide a ‘LSA / LSDBA amounts used’ statement within three months of the member taking their remaining benefits as a UFPLS and may then subsequently have to provide the member with the one-off ‘LTA% used’ statement.

Clearly, this might be rather confusing for the member, so schemes might need to consider exactly how they will provide all of the required information to the member (perhaps as a combined one-off ‘LTA% used’ statement and a ‘LSA / LSDBA amounts used’ statement).

Aries Insight?provides comprehensive and detailed guidance on the application of the requirements to provide ‘LTA% used’ and ‘LSA / LSDBA amounts used’ statements, 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.