The pension world has changed, and there’s a new term you need to know: the TTFAC, or Transitional Tax-Free Amount Certificate.
Out with the old, in with the new
Before the beginning of the current tax year, the Lifetime Allowance (LTA) limited how much you could save tax-free for retirement. This has been abolished, but there are two new limits: the Lump Sum Allowance (LSA) and the Lump Sum and Death Benefit Allowance (LSDBA). These new limits decide how much money you can take out of your pension without paying taxes.
Where the TTFAC comes in
The Transitional Tax-Free Amount Certificate or TTFAC works like a special pass that may let you take out more tax-free money than that laid out in the standard LSA or LSDBA. Obtaining a TTFAC ensures that the actual amount of tax-free lump sums taken before 6 April 2024 is accounted for, rather than an assumed amount.
Do you need a TTFAC?
If you took money out of your pension (also known as a Benefit Crystallisation Event or BCE) before 6 April, a TTFAC could be beneficial for you. The TTFAC could potentially offer a more favourable outcome by providing a taxfree allowance above the Lump Sum Allowance (LSA) and Lump Sum and Death Benefit Allowance (LSDBA).
Timing is key
You need to consider whether you would benefit, and if you would then get a TTFAC before you take any more money out of your pension after 5 April 2024. If you don’t get it before you take any money from your pension, you’ll be stuck with the standard tax rules. It is important to get advice on whether you would benefit from a TTFAC or not because, once you have applied, the TTFAC cannot be cancelled.
The value of pensions and investments and the income they produce can fall as well as rise. You may get back less than you invested.
The TTFAC Checklist
Below are some key question prompts that will help you and your financial planner to decide of a TTFAC may be a right fit for you.
- Did your steer clear of taking out a lump sum when you first got into your pension, or took out less than a quarter of it?
- When you took a pension benefit before 6/4/24, was it tested against a Lifetime Allowance (LTA) that was lower than today’s standard LTA of £1,073,100?
- Are you over 75 and had the standard LTA checks on your pension when you reached 75?
- Have you used up all your tax-free lump sum pension limit but still have some pension money left to take as income?
- Have you had a serious illness and taken a serious ill-health pension lump sum in the past?
- Has your work pension gone up a lot because you traded future increases for a bigger pension?
- Have you received a split of someone else’s pension via a pension sharing order?
- Have you moved an element of your UK pension to an overseas scheme?
If any of these sound like you, TTFAC could be worth your while. It’s all about making sure you get the most out of your pension without giving too much to the taxman. Reach out to your Quilter Cheviot Financial Planner, who can help you evaluate whether a TTFAC is right for you.