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Where Taxpayers and Advisers Meet

Intesection of the new pension Lump Sum Allowance (LSA) and the Lump Sum and Death Benefits Allowance (LSDBA)

sentinell
Posts:19
Joined:Wed Mar 11, 2009 5:04 pm
Intesection of the new pension Lump Sum Allowance (LSA) and the Lump Sum and Death Benefits Allowance (LSDBA)

Postby sentinell » Thu Jun 13, 2024 11:22 am

Hi,

I've wrapped my head around how the new pension Lump Sum Allowance works if you have already taken some pension benefits, but are still have other pension funds or entitlements that have not yet been crystallised.

It is a bit unclear how this works if death benefits and a widow's pension came into effect recently. I know someone who received death benefits of c. £100,000 in 2023, and started receiving a widows pension of c. £650 a month before 6 April 2024.

As this came from a DB scheme, I assume this will come off the LSDBA . There are two points here I am unsure of. Firstly I assuming the lump sum comes of the LSDBA, this brings the remaining LSDBA down to £973,100 (£1,073,100 - £100,000)

Secondly, there was a crystallisation event to pay the widows pension. As a rule of thumb, lets say the notional value crystallised was 25 x £7,800 per annum, which equals £195,000. From what I understand, the death benefits and the pension are totally separate (the pension is taxable), but the LSDBA could be reduced further on a standard calculation unless she gets a Transitional Tax-Free Amount Certificate.

Now, lets say in ten years time she takes her NHS pension benefits. I assume her LSA will still be £268,275 (or whatever it is in the future).

I am assuming in such a scenario, the LSA is only affected if the death benefit lump sums paid out by pension schemes are so substantial (lets say for example £900,000 was paid out) that it starts to eat into your LSA allowance.

Am I understanding this correctly, or have I gone totally off-script ? I know these changes are very recent, and seems like a bit of grey area right now.

Thanks.

sentinell
Posts:19
Joined:Wed Mar 11, 2009 5:04 pm

Re: Intesection of the new pension Lump Sum Allowance (LSA) and the Lump Sum and Death Benefits Allowance (LSDBA)

Postby sentinell » Sun Jun 30, 2024 11:49 am

Hi,

Maybe I over-complicated the question. I guess all I really want to know is if death benefits are paid out, are they tested against the recipients or the deceased available LSDBA ?

From what I have read, I think it is tested against the recipient.

Correct me if I am incorrect.


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