The Main Changes in the 2024-25 CII R04 Study Text

Here, we take a look at the main syllabus changes in the 2024/25 version of the CII’s R04 study text. The majority of these stem from the fall-out following the abolition of the lifetime allowances, with some other limits and allowances also updated.

This article is correct as at 28 August 2024 and is relevant to the 2024/25 examinable tax year.

The Lump Sum Allowance (LSA)

As of 6 April 2024, the abolition of the lifetime allowance was formally completed.

To ensure a consistent position in terms of the ability to access tax-free cash from a registered pension scheme, the lump sum allowance was introduced. This is a restriction on the value of tax-free lump sums that can be taken from a member’s pension schemes during their lifetime.

Benefits tested against the lump sum allowance are termed ‘relevant lump sums’ and their vesting is a ‘relevant benefit crystallisation event’ (RBCE). Relevant lump sums include the following:

• A pension commencement lump sum
• A stand-alone lump sum
• An uncrystallised funds pension lump sum (tax-free element)

Small pots lump sums, trivial commutation lump sums, and winding-up lump sums are not RBCEs and do not count against the allowance.

For most people, the lump sum allowance will be £268,275. However, those who previously held lifetime allowance protection could benefit from a higher allowance. The starting allowance is reduced by 25% of the lifetime allowance which had previously been used.

The Lump Sum and Death Benefits Allowance (LSDBA)

The LSDBA was the other part of the major replacements for the lifetime allowance.

This is an overall limit to the amount of tax-free lump sums which can be paid to a member or their beneficiaries during their lifetime and on their death.

A payment made on death is known as a ‘relevant lump sum death benefit’. There are eight of these. The following are tested against the LSDBA:

• Defined benefits lump sum death benefit
• Uncrystallised funds lump sum death benefit
• Annuity protection lump sum death benefit
• Pension protection lump sum death benefit
• Drawdown/flexi-access drawdown lump sum death benefit
• Dependent/nominees/successors flexi-access drawdown lump sum death benefit

The following are RBCEs but are not tested against the LSDBA:

• Charity lump sum death benefit
• Trivial commutation lump sum death benefit

As with the LSA, the LSDBA will generally be set at the member’s previous lifetime allowance with a deduction based on previous lifetime allowance use.

The Overseas Transfer Allowance (OTA)

The OTA was introduced as a replacement measure for the old benefit crystallisation event (BCE) 8, which covered transfers to a qualifying recognised overseas pensions scheme. It limits the amounts that a member can transfer out of the UK to an eligible overseas scheme.

As with the LSA and LSDBA, the allowance is based on the member’s previous lifetime allowance. However, transfers do not impact their eligibility for the other two allowances.

Transfers which exceed the limit, or which are to a non-eligible QROPS attract a tax charge of 25%.

Transitional Tax-Free Amount Certificates (TTFACs)

The LSA and LSDBA are based on the assumption that the member took 25% tax-free cash at each previous BCE. On some occasions, this may not have happened. For example:

• Defined benefit scheme members who did not take a PCLS due to poor commutation rates, or who had a defined PCLS e.g. 3/80ths.
• Defined contribution members who did not take a PCLS due to a good guaranteed annuity rate.
• Members of a section 32 plan whose PCLS entitlement was limited by GMP.
• Those who had a test on uncrystallised funds at age 75.
• Members who took benefits under a previous, lower lifetime allowance.

In this instance, the member can apply for a TTFAC, which allows their allowances to be based on lump sums actually taken and not an assumed 25% of the LTA.

Certificates must be applied for before the member’s first RBCE. They are usually irrevocable once issued and care must be taken when applying for one as there are some circumstances where a member can actually be worse off as a result of applying for a certificate.

State Pensions

The new State Pension and the old Basic State Pension were uprated at a rate of 8.5% in line with the triple lock guarantee. Additional State Pensions were uprated in line with CPI at 6.7%

The Financial Ombudsman Service

Complaints compensation limits were increased to £430,000 for complaints about occurrences on or after 1 April 2019 and £195,000 for those before.

Statutory Money Purchase Illustrations

On 1 October 2023, changes to make pension projections more consistent and reliable came into effect, with further amendments for calculations from 6 April 2024.

The FCA’s Retirement Income Review

In March 2024, the FCA published the findings of its review into the quality of retirement income planning advice. It found a reasonable standard of advice overall but found failings including:

• Standardised approaches not tailored to client circumstances.
• Methods and assumptions not justified or recorded.
• Risk profiling not evident or inconsistent with objectives.
• Failure to obtain sufficient information to justify suitability of the advice.
• Customers not always receiving the periodic reviews that they paid for.

The FCA has stated that it intends to continue its work in this area. Whilst it is a long shot for an exam question, it is useful background information.

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