Pension Scheme Death Benefits Post 6 April 2024
Since the start of this tax year, lump sum death benefits paid within two years from the date of death for members who died under the age of 75 are tax-free up to the deceased’s available Lump Sum and Death Benefit Allowance (LSDBA).
This may sound straightforward, but how is the remaining LSDBA calculated? If the deceased had not taken any pension benefits prior to their death, the standard amount of £1,073,100 will apply. However, if they had lifetime allowance protection, it is our understanding that their LSDBA will depend on the type of protection held:
| Type of Protection | Amount of LSDBA |
|---|---|
| Individual Protection (2014) | Value of benefits @ 5 April 2014 to a maximum of £1,500,000 |
| Individual Protection (2016) | Value of benefits @ 5 April 2016 to a maximum of £1,250,000 |
| Fixed Protection (2012) | £1,800,000 |
| Fixed Protection (2014) | £1,500,000 |
| Fixed Protection (2016) | £1,250,000 |
| Primary Protection | £1,800,000 x (1+ Primary Protection Factor) |
| Enhanced Protection | Value of uncrystallised rights on 5 April 2024 |
Of course, many of your clients will have taken pension benefits before 6 April 2024, so their LSDBA will need to be reduced accordingly. The adjustment will depend on whether the “default” basis applies or whether the member (or the personal representatives of the deceased client) obtained a Transitional Tax-Free Amount Certificate (TTFAC).
Using the default basis, the adjustment to the standard LSDBA can be calculated using the following formula:
=25% x lifetime allowance % used as of 5 April 2024 x £1,073,100.
However, if a serious ill-health payment or lump sum death benefit was paid before 6 April 2024, the formula changes to:
=100% of the lifetime allowance % used x £1,073,100.
Under the default basis, if the deceased member had used all of their lifetime allowance by 5 April 2024, their LSDBA (and LSA) will be zero.
If a TTFAC is in force, the adjustment to the deceased’s LSDBA is more straightforward. It will be the amount specified on the certificate as the “Lump Sum and Death Benefit Transitional Amount.” For more information about TTFAC, please see our guide on Transact Online by going to ‘Information’ > ‘Documents’ and it can be found under ‘Other’. A calculator is also available to help you assess which approach is most beneficial for your clients. Simply go to ‘Information’ > User Guides’.
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2. TOL Recent Enhancements
3. Transact API Integrations
4. Administration of Transfer Deposits From Third-Party Providers
5. Adviser Trends from 2024 Investment Trends Study.
6. Transact-BlackRock MPS Goes Live on FE Analytics
7. Pension Scheme Death Benefits Post 6 April 2024
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10. Transact Events 2024