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HMRC has provided an update on the abolition of the lifetime allowance, as well as information on relief at source and pensions for retained firefighters.

HMRC has published the Pension schemes newsletter 155. It provides an update on a range of issues, including the abolition of the lifetime allowance (LTA) and how the pension commencement excess lump sum (PCELS) will operate.  

LTA: legislative changes

The legislation abolishing the LTA is contained in Finance Bill 2023-24. HMRC has received feedback querying how the PCELS will operate. The policy objective of PCELS is to allow those individuals entitled to access 25% or more of their pension benefits as a lump sum, to continue to do so where they have used the whole of their lump sum allowance. 

In its current version the legislation concerning PCELS may create some unintended consequences. HMRC is considering how to address these issues, whether through legislative change or other means.  

HMRC has identified three other areas where legislative change is believed to be needed: 

  • scheme-specific lump sum protection;
  • the newly created ‘event 24’ concerning the payment of a lump sum or lump sum death benefit in relation to relevant benefit crystallisation events; and
  • the calculation of tax due on lump sum death benefits.

LTA: FAQs and future communication

HMRC has published answers to 10 frequently asked questions (FAQs) in the newsletter.  

The pension changes take effect from 6 April 2024 and will entail both technical and operational changes for pension providers. HMRC is aiming to publish updates every fortnight through LTA guidance newsletters or the main monthly pensions schemes newsletter. 

HMRC is also organising two LTA workshops in February 2024 to discuss transitional arrangements and reporting arrangements. Those who want to attend can email HMRC at policypensions@hmrc.gov.uk.  

Relief at source

Pension scheme administrators operating relief at source will need to know the residency status of scheme members (ie, Scotland or rest of the UK). 

HMRC has starting issuing January 2024 notification of residency status reports. An email will be sent out by HMRC alerting the scheme administrator that the report is ready for download. Scheme administrators then have six days (144 hours) to download the file, starting from when the report is made available.  

It is also possible to find a member’s residency status using the look up service for relief at source. 

Additionally, HMRC is extending its acceptance of some scanned relief at source forms until 31 March 2025. 

Retained firefighters

Following a House of Lords decision in 2006, retained firefighters are able to convert their pension membership to join the Fire Authorities Schemes for the 2000 to 2016 period. 

The Fire Authority Schemes need to apply to HMRC to allow the conversion of membership. HMRC has previously contacted them reminding them of this, but if the correct process is not followed, taxpayer records will not be amended by HMRC. 

Fire Authorities must provide complete information to HMRC by 5 April 2024, in order to be processed. 

Operational updates

Government Gateway credentials may be deleted when a person has not logged into their Business Tax Account for the previous three years. The newsletter sets out how access may be recovered. 

Also, HMRC had planned to introduce a new function allowing a pension scheme return to be submitted on the Managing pension schemes service from April 2024. However, the introduction of this has been deferred, with no new date provided. Scheme administrators may still decide to take action to migrate pension schemes to the new service ready for when it does launch. 

Lastly, updated statistics on the number of tax repayment claim forms for pension flexibility payments have now been published.