Advisers have just four months to get to grips with new pension legislation, coming into force in April 2024.
Savers will have their lifetime pensions tax-free cash capped at £268,275 under rules confirmed by the Finance Bill published yesterday (November 29).
Rachel Vahey, head of policy at AJ Bell, said it brings the industry one step closer to understanding how abolishing the lifetime allowance, announced in the Autumn Statement, will work in practice.
She warned that the change in rules is “far from simple” and that for advisers, the “hard work starts now”.
A new lump sum and death benefit allowance set at £1,073,100 – the same level as the lifetime allowance – will also be brought in as part of the reforms.
Vahey said: “Instead of one lifetime allowance, savers will have two new main allowances to contend with.
"These allowances are designed to limit the pension tax-free lump sums people can receive in life and the tax-free lump sums they can pass onto beneficiaries when they die.
"Where previously pension withdrawals over the lifetime allowance could be subject to a lifetime allowance tax charge, savers can now take as much income as they want from their retirement pot, with just income tax to pay on pension withdrawals."
However, anyone hoping the decision to scrap the lifetime allowance would lead to radical simplification should think again, she explained, as these rules are far from simple.
"There are over 100 pages of new legislation and advisers have four months to get to grips with the detail, identify which clients are affected and work with them to figure out the best way forward," she added.
“Support services, providers and platforms will need to step up to help advisers, providing technical support on complex cases.”
Vahey said the largest area of advice will be around transitional arrangements for those who access their pension before April 6, 2024 and are close to the existing lifetime allowance.
Under the new rules, a saver’s available ‘lump sum allowance’ and ‘lump sum and death benefit allowance’ will be reduced depending on how much lifetime allowance they have already used up before April 6, 2024.
The calculation will be made the first time someone accesses their pension after April 2024 – usually, 25 per cent of someone’s used lifetime allowance will be deducted from both their lump sum allowance and their lump sum and death benefit allowance.
A Treasury policy paper, published on the day of the Autumn Statement, read: "This measure will have a positive impact on individuals saving into a registered pension scheme who are entitled to receive lump sum benefits, or whose beneficiaries are entitled to receive lump sum death benefits.
"This is because regular pension income will no longer be taken into account for the purposes of the maximum lump sum threshold of £1,073,100, or an individual’s protected level. This increases members’ tax-free lump sum entitlements.
"Furthermore, this tax-free threshold will no longer restrict the overall value that can be taken as a relevant lump sum, and lump sum benefits which exceed this monetary cap will be taxed an individual’s or beneficiaries’ marginal rate."
The Treasury was approached for further comment.
tara.o'connor@ft.com
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