HomeDaily updateM&G adds LTA transition calculator

M&G adds LTA transition calculator


The tool is hosted within M&G Wealth’s online technical hub, Tech Matters.

M&G Wealth has added a new tool help advisers calculate whether their clients could benefits from a Transitional Tax-Free Amount Certificate ahead of the abolition of the Lifetime Allowance (LTA) in April.

M&G Wealth claims its new tool can increase the potential tax-free cash amount for a client by over £110,000.

The LTA has been replaced with three new allowances: the Lump Sum Allowance (LSA), the Lump Sum and Death Benefits Allowance (LSDBA) and the Overseas Transfer Allowance (OTA).

Clients who have accessed pension benefits under the pre-April 2024 Lifetime Allowance regime will have their standard Lump Sum Allowance, Lump Sum Allowance and Death Benefit Allowance reduced under the transitional rules.

Under the new rules Transitional Tax-Free Amount Certificates, provided by a registered pension scheme, can prove that the scheme member is entitled to a lower reduction in the LSA and LSDBA than that provided for by the standard default calculation.

The new tool from M&G Wealth will help advisers identify the standard Lump Sum Allowance, calculating reductions based on default transitional rules and under Transitional Tax-Free Amount Certificate rules.

The tool also recognises whether allowances are higher under default or certificate rules.

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Under the current rules, if someone has used 80% of the £1,073,100 Lifetime Allowance, the maximum tax-free cash they can take is 25% of their remaining Lifetime Allowance, which would be £53,655, regardless of how much tax-free cash they have previously taken. Under the new rules, the Lump Sum Allowance is reduced by 25% of the Lifetime Allowance previously used, which would be £214,620. However, if they can prove they have only taken £100,000 previously, they can get a Transitional Tax-Free Amount Certificate which allows a lower reduction, so increasing the potential tax-free amount by £114,620.

Les Cameron, head of M&G Wealth’s team of pension and tax technical experts, said:  “Tax-year end is rapidly approaching and the LTA abolition is providing an added twist.

“The number one question we’re being asked is whether clients will be able to access more tax-free cash under the new rules, so we’ve developed an easy-to-use tool based on three simple inputs to provide the answer, which we believe is the first of its kind.”

The tool is hosted within M&G Wealth’s online technical hub, Tech Matters.

In an adviser poll conducted by M&G Wealth in December, 78% of the 420 advisers surveyed said they were either unsure or did not have enough information to advise their clients on scrapping the LTA.

• Financial Planning Today Snap Analysis: It’s no surprise that M&G Wealth is launching this new tool for the LTA reforms – and that other providers are also stepping in to help planners. The initial thoughts of the Lifetime Allowance as simply being abolished have been replaced by a realisation that the new rules are complex and require a great deal of understanding to avoid mistakes. Many of the new rules on LTA abolition have only just been published and even the experts are grappling to understand them. For Financial Planners it will be easy to fall foul of the new rules so any assistance is to be welcomed. It’s also a reminder that what Chancellors announce in Budgets is often only a headline, the proof is always in the pudding and some puddings can be very dense indeed. The LTA reforms are to be welcomed but are nowhere near as clear as first thought.

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