AGE 75 TESTS AND THEIR IMPACT ON THE LUMP SUM ALLOWANCE AND LUMP SUM DEATH BENEFIT ALLOWANCE

Given the complexity surrounding the lump sum allowance (LSA) and lump sum death benefit allowance (LSDBA), the impact of benefit crystallisation events (BCEs) prior to 6 April 2024 and the changes in relation to age 75 BCEs, it is not surprising that this is a topic that we continue to receive queries about from advisers.

Since 6 April 2024, age 75 BCE’s no longer occur, but ones that arose prior to this date can still impact future tax-free cash payments.  Whether they have an impact will depend on whether the client received any tax-free cash after turning age 75 and whether they have a transitional tax-free amount certificate in force.

Pre‑April 2024: what was tested at 75?

Prior to 6 April 2024, the LTA regime tested benefits at age 75 under three “automatic” BCEs, normally the final LTA checkpoint for most members.​

Key age 75 BCEs were:

• BCE 5 – uncrystallised defined benefit (DB) rights tested at 20 × pension plus separate tax-free cash where applicable.​
• BCE 5A – growth in the value of a drawdown account when compared to the original designated amount.​
• BCE 5B – uncrystallised money purchase funds tested at their market value at age 75.​

If the aggregate LTA usage including the age 75 tests exceeded 100%, a 25% LTA charge was applied to the excess, with the charge usually met from the scheme and benefits adjusted. Importantly, for uncrystallised money purchase funds tested under BCE 5B, legislation preserves a notional portion of the allowance for calculating any tax-free lump sum after age 75. This ensures that individuals can still access some tax-free cash even though the formal LTA test occurred at age 75.

Transitional shift from 6 April 2024

The LTA was abolished from 6 April 2024 and replaced with two new allowances: the LSA (standard £268,275) and LSDBA (standard £1,073,100), both of which are reduced to reflect pre-6 April 2024 BCEs. Pre 2024 BCEs (including those at age 75) feed into a “previously used” LTA figure which is then used in the standard transitional calculation to determine an individual’s remaining LSA and LSDBA.​

From 6 April 2024 onwards:

• There are no new BCE tests at age 75; instead, only relevant benefit crystallisation events (RBCEs) trigger use of LSA/LSDBA whether before or after age 75.​
• Scheme administrators must issue RBCE statements (and, in time, annual statements) showing usage of LSA and LSDBA, including beyond age 75.​

Age 75 therefore shifted from being an automatic tax test date to a purely planning milestone for timing lump sums payments and managing the interaction with the new allowances.

The age 75 disregard: when LTA usage at 75 is ignored

The “age 75 disregard” is a transitional rule which, in effect, says that certain automatic age 75 BCEs that occurred before 6 April 2024 are ignored when calculating the member’s LSA and LSDBA usage, provided strict conditions are met.​

Broadly, the disregard applies where:

• The member reached age 75 before 6 April 2024.​
• On reaching age 75 the member had an automatic age 75 BCE under any registered pension scheme (BCE 5, 5A or 5B).​
• Between reaching age 75 and 5 April 2024 the member did not become entitled to any tax-free lump sum (for example PCLS, UFPLS tax-free element, serious ill health lump sum or a standalone lump sum) under any registered pension scheme.​

Where these conditions are satisfied, the amount of LTA deemed to have been used at the age 75 BCE is excluded from the “LTA previously used amount” for the standard transitional calculation of LSA and LSDBA. This can significantly increase the remaining LSA/LSDBA for clients who had sizeable uncrystallised or drawdown funds tested at 75 but deferred taking tax-free cash until after 5 April 2024.​

By contrast, if the member took any tax-free lump sum between age 75 and 5 April 2024, and the age 75 BCE usage remains in the previously used amount, reducing their LSA and LSDBA in the usual way. In these cases, a Transitional Tax-Free Amount Certificate (TTFAC) may still be useful (see our guide on Transact Online for more information about these TTFACs).

For many of our clients, we hold accurate information on whether the “age 75 disregard” can be applied.  For some the position may be less clear.  We will shortly be reviewing client BCE data to identify any clients where there is still uncertainty and we will contact you if further information is required. If you have any questions, please feel free to contact the Technical Services team.

All information is based on our understanding and interpretation of applicable law and regulation which is subject to change.