WTW comment
Schemes may point members who enquire about a TTFAC towards HMRC’s online tool, or may even include a link to it within routine retirement communications. The tool is useful in confirming to some members that they should consider applying for a certificate and also filtering out cases where a member would be ineligible to apply (for example, where they have already undergone a relevant benefit crystallisation event under the current LSA regime). However, there are risks in relying exclusively on the tool as some of the key questions are ambiguous/poorly phrased and it does not cover all circumstances where there could be an advantage, for example where members have used up all of their LTA. This could lead to some members not applying for a TTFAC when it would be to their advantage, whilst others might apply even though they would lose out by doing so. If a TTFAC is obtained, this must be used even if it makes the member’s tax position worse.
There is no regulatory requirement on schemes to notify members of the facility to apply for a TTFAC and so pointing them towards HMRC’s on-line tool would be doing more than the minimum required. However, if a scheme does provide a link to the tool, it seems reasonable that they should also warn members of its shortcomings.
A rule of thumb to help members self-identify whether a TTFAC might potentially benefit them would be to consider whether the value of pension benefits accessed before 6 April 2024 (lifetime allowance percentage used x £1,073,100) plus the value of uncrystallised pension benefits expected to be drawn (or that might be payable on death) might approach £1m or more. If the answer to that question is yes, a certificate could make a difference and is worth investigating. If the value is expected to be less than £1m, it is not obvious how they could benefit.
Where it is established that a TTFAC might make a difference, the only “safe” approach is to establish how much tax-free lump sum has actually been taken and to then compare that to the amount assumed using the standard transitional calculation. Schemes are under no obligation to perform this check on behalf of members (and they won’t necessarily know how much tax-free cash has been taken from other schemes, anyway), but a few may choose to do so. Ultimately, it is for a member to decide both whether they wish to apply and, if so, to then make an application – schemes cannot apply on their behalf. Where a member is contemplating applying for a TTFAC, we would recommend strongly that they speak with a financial adviser.
