Following the abolition of the Lifetime Allowance (LTA), many advisers have been focusing on whether clients could benefit from obtaining a Transitional Tax-Free Amount Certificate (TTFAC). In this final of four articles from Quilter, Tim Grainger – retirement specialist, walks us through the steps to applying for a TTFAC.
As discussed in our previous article, a certificate can be valuable where the standard transitional calculation overstates the amount of tax-free cash a client has previously taken. However, identifying a potential benefit is only the first part of the process.
The real challenge is gathering the evidence required to support an application.
For paraplanners, obtaining a certificate can often involve a detailed historic review of pension benefits dating back to A-Day in 2006, requiring information from multiple providers and schemes.
So what does the process actually involve?
Step 1: Establish whether the client is eligible
Before beginning any detailed analysis, it is important to confirm that the client can apply for a certificate.
Broadly speaking, a TTFAC is only available where:
- the member has had one or more benefit crystallisation events before 6 April 2024;
- they have not taken a relevant tax-free lump sum after 5 April 2024 and before the certificate is issued; and
- they can provide sufficient evidence to support the application.
There are also situations where obtaining a certificate may have little practical value.
For example, clients with enhanced protection and protected lump sums may already have a higher lump sum entitlement that is unaffected by a certificate.
Public sector pension cases can also require additional care. Where a client is impacted by the McCloud remedy, it may be necessary to establish whether their final benefit position has been confirmed before a certificate can be issued.
Depending on the scheme involved and the status of the remedy exercise, this may affect the information available for the calculation.
Step 2: Confirm whether a certificate is likely to be beneficial
A TTFAC should never be viewed as an automatic recommendation.
As many advisers have already discovered, some clients are better off under the standard transitional calculation.
Before progressing an application, paraplanners should obtain sufficient information to compare:
- the standard transitional calculation; and
- the position if a certificate is obtained.
This review should consider all historic benefit crystallisation events, the amount of lifetime allowance used and the actual tax-free cash received.
The objective is simple: establish whether obtaining a certificate will preserve additional Lump Sum Allowance (LSA) or Lump Sum and Death Benefit Allowance (LSDBA).
As the certificate becomes binding once issued, carrying out this comparison is arguably the most important part of the entire exercise.
Step 3: Gather the evidence
For many paraplanners, this will be the most time-consuming stage.
Legislation requires complete evidence to support the calculation. In practice, this means obtaining information that allows the scheme administrator to understand both:
- how much lifetime allowance was used; and
- how much tax-free cash was actually paid.
Evidence may be required for events stretching back nearly 20 years, often involving several providers, occupational schemes and legacy arrangements.
The information required will typically include:
- the total percentage of LTA used;
- dates of benefit crystallisation events;
- amounts designated to drawdown;
- annuity purchases;
- scheme pension commencements;
- pension commencement lump sums (PCLS);
- tax-free elements of UFPLS payments;
- standalone lump sums;
- serious ill-health lump sums; and
- relevant lump sum death benefits.
In some cases, pre-A-Day pensions in payment may also need to be considered as part of the overall calculation, any pre-A-Day pension is generally treated as though 25% of the deemed fund value was paid as tax-free cash, regardless of what was actually taken.
Step 4: Track down historic records
One of the biggest challenges is locating evidence for older pension events.
Ideally, clients will still hold benefit crystallisation statements, retirement packs or provider correspondence confirming:
- the date of the event;
- the amount crystallised;
- the percentage of LTA used; and
- any tax-free lump sums paid.
However, many older records have been lost or discarded.
Where this happens, paraplanners will often need to contact former pension providers, trustees or scheme administrators to request confirmation of historic transactions.
This can be particularly challenging where:
- schemes have transferred administration;
- providers have merged;
- records relate to benefits taken over a decade ago; or
- the client has had multiple pension arrangements.
Starting this exercise early can avoid significant delays later in the process.
Step 5: Submit the application
Once the calculation has been completed and supporting evidence gathered, the application can be submitted to the relevant pension scheme administrator.
Although processes differ between providers, the application will generally require:
- confirmation of the member’s details;
- supporting evidence;
- details of all historic crystallisations; and
- confirmation of the tax-free benefits received.
Schemes may request additional information or clarification before issuing a certificate.
Under HMRC rules, schemes generally have three months to provide the certificate once a valid application has been received.
Practical tips for paraplanners
When reviewing a potential TTFAC case:
- Start gathering evidence as early as possible.
- Create a timeline of all known crystallisation events.
- Pay particular attention to tax-free cash taken after age 75.
- Check for historic QROPS transfers and serious ill-health lump sums.
- Review any public service pension benefits separately.
- Ensure clients understand that a certificate is generally irreversible once issued.
The bottom line
For many clients, a TTFAC could preserve valuable tax-free cash entitlement under the post-LTA regime. However, the success of any application depends on the quality of the historic evidence available.
While the technical calculations can be complex, the biggest challenge for paraplanners is often reconstructing a client’s lifetime allowance history and obtaining the documentation needed to support it.
Those who can successfully piece together that history will be in the best position to determine whether a certificate genuinely improves the client’s outcome and whether an application is worth pursuing at all.
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