This article is a high-level summary of changes to the taxation of pensions that came into effect in April 2024 and mainly affect members with higher pension values. If you believe you will be affected by these changes, then please read on or talk to an Independent Financial Adviser. You can visit the MoneyHelper website at www.moneyhelper.org.uk for information on how to get advice. Please note if you are already in receipt of your NRA60 and NRA65 benefits then this will not affect you.

Lifetime allowance

Between 6 April 2006 and 5 April 2024, there was a limit on the pension savings an individual could build up in their lifetime without being subject to additional tax charges, known as the lifetime allowance (LTA).

In the 2023 spring budget, the Chancellor announced that from 6 April 2023 there would be no additional tax charge on any benefits over the LTA, and with effect from 6 April 2024, the LTA would be removed completely.

However, a change was made to tax-free lump sums which came into effect from 6 April 2024.

Limit on tax-free lump sums from pensions

You can take 25% of the value of your pension as a tax-free lump sum. Whilst the LTA has been removed, a limit has been retained on the maximum amount you can take as tax-free lump sums from all your pensions over your lifetime. This is the Lump Sum Allowance (LSA) and for most people this limit will be £268,275, but in some instances a higher limit may apply. This doesn’t mean you can necessarily take a lump sum of £268,275 – that is the limit that applies on your 25% lump sum.

These tax-free lump sums can be either:

• Pension Commencement Lump Sums – where you exchange part of your pension for cash at the start of your retirement (or are entitled to a cash sum in addition to your pension).
• Uncrystallised Funds Pension Lump Sums (UFPLS) – in a Defined Contribution scheme, you and your employer pay into a pension pot towards retirement and can then be taken a number of different ways (with the most common being an annuity i.e. an annual pension). However, you could choose to take to take your pension pot as a one-off lump sum, but only 25% of an UFPLS is tax-free. As the RMSPS is a defined benefit scheme, you cannot take an UFPLS from the Scheme, but it may apply for other pension savings you have outside of the Scheme.

Any amount you take as a lump sum over the LSA will be taxed as income. You are responsible for providing information to your schemes on any lump sums taken from other registered pension schemes.

If you previously applied for lifetime allowance enhancement or protection from HMRC, you may be able to take more of your pensions as tax-free cash, subject to 25% of your total benefits.

You also need to have available Lump Sum and Death Benefit Allowance. Further information on this allowance can be found below.

Death benefits

In the event of your death before the end of the first five years of your pension being paid (unless you have been told it is a longer period), any remaining pension within this period will normally be paid as a lump sum.

From 6 April 2024, there is a maximum amount of tax-free lump sum death benefit that can be paid. This is the Lump Sum Death Benefit Allowance (LSDBA) and for most people it will be £1,073,100.

The following are measured against this allowance:

• Death benefit lump sums from any scheme paid following your death.
• Serious ill-health lump sums paid to you before your death.
• Certain tax-free cash lump sums paid to you before your death.

If these add up to more than the LSDBA of £1,073,100, then tax is paid on the excess.

The above limits on tax-free cash lump sums apply from 6 April 2024. If you have taken benefits already then some of your LSA or LSDBA may be counted as having been used if you come to take more benefits after April 2024. Please contact us if you would like to know more.