Transitional arrangements

Is there a deadline to apply for a certificate?

Yes. People must apply for a certificate before the first relevant benefit crystallisation event in the new regime during their lifetime. Or, if the first relevant benefit crystallisation event is after a death, their legal personal representatives must apply before 31 October in the tax year following the tax year the RBCE happened in.

If they are issued with a certificate, it will replace the standard transitional calculation (STC). A certificate can’t be applied for retrospectively.

Which clients might benefit from the certificate?

There will be ‘winners and losers’ from applying for the certificate; we can’t know who falls into which camp until they do the relevant calculations.

The standard transitional calculation assumes someone has always received tax-free cash of 25% of their used lifetime allowance.

For this reason, some people will lose out, because they’ve taken less tax-free cash than this calculation assumes. If that’s the case, they can request a certificate that gives them some tax-free cash entitlement back.

Clients may benefit from a certificate if they:

• took less than 25% cash; or
• crystallised in the four years where the lifetime allowance was lower than £1,073,100 (because the standard calculation is based on receiving 25% of £1,073,100, not 25% of a lower allowance).

Please note that if the client only received a tax-free lump sum before 6 April 2006, they cannot apply for a certificate.

Which clients could the certificate make worse off?

It’s important to be aware that not all clients will be better off applying for a certificate, and some will be worse off. Clients may lose out from the certificate if they:

• took scheme-specific tax-free cash protection for at least one of their lump sums, as this gives more than 25%; or
• took a lump sum when the lifetime allowance was higher than £1,073,100.

However, this all depends on personal circumstances, and any other lump sums they took.

What happens if the certificate reduces your client’s allowance?

A certificate is irreversible. If a scheme receives an application, and all the required evidence is provided, it must issue a certificate, even if the scheme knows it will result in a worse outcome for the client. It’s not possible to withdraw an application – either before the certificate is issued or after it has been received.

What type of evidence for lump sums does AJ Bell Investcentre ask for?

Evidence must state the pension scheme, the policy number or reference (if there is one), the type of lump sum, the lump sum amount and the date. For pensions where your client gave up their entire lump sum, the evidence must confirm this in some way.

The ideal evidence will therefore be a copy of the confirmation letter the client received at the time the lump sum was paid. If your client no longer has that, we will accept a recent letter or email from the scheme administrator or trustees.

However, they will still need to provide evidence of all lump sums they took.

Please note that pre-2006 pensions are included in the certificate calculation, but only if the client took benefits between 6 April 2006 and 5 April 2024 and a lifetime allowance reduction calculation took place. In those cases, we’ll also need evidence of the reduction. This information should be on the confirmation letter the client received at the first benefit crystallisation event on or after 6 April 2006.

There is no need to provide evidence relating to AJ Bell pension schemes, as we will already have this on file, but details do still need to be added to the form.

What information has to be included within the certificate?

• The applicant’s name, address and National Insurance Number.
• The amount of lifetime allowance they’ve used previously, expressed as a percentage of the standard lifetime allowance at the time the benefit was taken.
• The lump sum transitional tax-free amount, as verified by the scheme administrator.
• The lump sum and death benefit transitional tax-free amount, as verified by the scheme administrator.

The certificate is wrong, what happens now?

If there’s an error on the certificate, it can’t be amended. It just becomes invalid and can’t be relied on.

What other guidance has HMRC provided?

In addition to the above, HMRC has also told us:

• A pension saver (or their Legal Personal Representatives on death) can apply to any scheme they are a member of.
• The legislation states that once a certificate has been applied for, the scheme must either issue one or decline to issue one within three months.
• Schemes may only decline to issue a certificate if the member has failed to provide “complete evidence”. The three-month clock only starts when complete evidence has been received.
• Certificates will be viewed as an accurate record of the member’s tax position, even if it is less beneficial than the standard transitional calculation. Schemes cannot ignore a certificate.
• HMRC will not mandate for transitional certificates to be shared between providers on transfer.
• Regulations that came into force on 18 November 2024 mean that once a client is issued a certificate, they have a requirement to provide a copy to every other pension scheme they are a member of within 90 days.