The Pearson Pension Plan

What changes are being made?

From 6 April 2024 the Lifetime Allowance (LTA) is being abolished and replaced with three new allowances. They are:

• Lump Sum Allowance (LSA)
• Lump Sum and Death Benefit Allowance (LSDBA)
• Overseas Transfer Allowance

• Lump Sum Allowance
  • How much is the new LSA?

    The standard LSA is currently £268,275.

    A higher amount may apply if you have certain tax protections. This means that when LSA is mentioned on this page, it will refer to your specific LSA, unless explained differently.

  • What benefits are included in your LSA?

    The LSA applies to the tax-free lump sum that you can take at retirement from the Plan. Any lump sums that exceed your available allowance will be taxed at the rate of income tax you pay.

  • What benefits are not included in your LSA?

    The LSA does not apply to any trivial commutation lump sum or small lump sums that you may be eligible to take from the Plan at retirement. However, you must have some LSA available to be able to take a trivial commutation lump sum.   

    The income you receive from your pension is not tested against the LSA but is taxed at your marginal rate of income tax. 

  • When will you test my benefits against the LSA?

    Any tax-free lump sum (other than a small lump sum) taken at retirement will be tested against the LSA (although you must have some LSA available to be able to take a trivial commutation lump sum, it will not reduce your LSA). The standard LSA has been set at £268,275 and is reduced by the amount of any tax-free lump sum that you take. 

• Lump Sum and Death Benefit Allowance
  • How much is the new LSDBA?

    The standard LSDBA has been set at £1,073,100.

    A higher LSDBA amount may apply where you have a relevant tax protection. This means that when LSDBA is mentioned on this page, it will refer to your specific LSDBA.

  • What benefits are included in your LSDBA?

    The following lump sum benefits payable from the Plan are tested against the LSDBA:

    • Pension commencement lump sums (tax-free lump sum)
    • Uncrystallised funds lump sum death benefits
    • Serious ill-health lump sums
    • Defined benefit lump sum death benefits.

    The following lump sums payable from the Plan are not tested against the LSDBA:

    • a small lump sum
    • a trivial commutation lump sum
    • a trivial commutation lump sum death benefit.
  • When will you test my benefits against the LSDBA?

    Any relevant lump sums are tested against your LSDBA when the lump sum benefit is paid either to you or to another person in the event of your death (as relevant). Your LSDBA is reduced by the amounts of the tax-free lump sums that are taken. 

• Taking benefits from the Plan
  • I want to take my whole pension as a lump sum, can I still do this?

    The Plan rules only permit you to take the whole of your pension as a lump sum in limited circumstances. These circumstances are on the grounds of serious ill-health or on the grounds of triviality if the value of your pension is below a certain amount. If you do not meet the serious ill-health or triviality conditions, then you will have to transfer your pension to another arrangement that will permit you to take your whole pension as a lump sum.

  • My retirement date is before 6 April 2024, how does this affect me?

    If your retirement date is before 6 April 2024 then any benefits will be tested against the LTA. 

    If we are unable to pay your pension and tax-free lump sum before 6 April 2024, your benefits will still be tested against the LTA and not the LSA and LSDBA.

  • I am retiring on or after 6 April 2024 but have already taken other pensions, what information will you need?

    If you have benefits that were paid before 6 April 2024, and payment from the Plan will be your first relevant benefit crystallisation event since 6 April 2024, then we will need information about the percentage of the LTA that you used before 6 April 2024. We will use this to work out how much of the LSA and the LSDBA you have used. 

    If you have used up all your LTA before 6 April 2024, your LSA and LSDBA will be nil. 

    If you had some LTA remaining on 6 April 2024, we will need to calculate your available LSA and LSDBA. This involves working out a monetary value of the LTA that you have used up, and deducting part of that value from your LSA and LSDBA. In most cases the deduction will be 25% of the monetary value, unless (for example) you received either a serious ill-health lump sum or a lump sum death benefit before age 75.

    Alternatively, if the benefits you will receive from the Plan will be your first relevant benefit crystallisation event on or since 6 April 2024, you can apply for a transitional tax-free amount certificate from the Plan. 

    A transitional tax-free amount certificate will show your actual lump sum transitional tax-free amount and lump sum and death benefit transitional tax-free amount. Once a certificate is obtained, the amounts of your LSA and LSDBA as confirmed in the certificate will then be used in our calculations.

    To apply for a transitional tax-free amount certificate, you must be able to:

    • provide detailed evidence of the lump sums that you have received already, and 
    • confirm that as of 6 April 2024, your tax-free lump sums are a lower amount than that the standard calculation approach explained above would produce. 

    You may only apply for the certificate once. 

    If the benefits you will receive from the Plan on your retirement will not be your first relevant benefit crystallisation event since 6 April 2024 and you have already obtained a transitional tax-free amount certificate from another pension arrangement, please share this with us. 

  • What happens if I have no available LSA or my lump sum exceeds the LSA?

    If you have used up all of your LSA or your lump sum exceeds the LSA when combined with your other pension benefits, then any lump sum in excess of the LSA will be paid through the pension payroll and will be taxed at your marginal rate.

  • What happens if I have no available LSDBA or my lump sum exceeds the LSDBA?

    If you have used up all of your LSDBA or your lump sum exceeds the LSDBA when combined with the other lump sums you have become entitled to, then any lump sum in excess of the LSDBA will be paid through the pension payroll and will be taxed at your marginal rate.

    Where a lump sum is paid to one or more of your beneficiaries on your death, it will be tested against your LSDBA. If you have used up all of your LSDBA or the lump sum exceeds the LSDBA when combined with the other lump sums either you have become entitled to or which are payable on your death, then any lump sum which is paid to your beneficiaries which is in excess of your LSDBA will be taxable at their marginal rate.

  • How can I check how much LTA/LSA/LSDBA I have used up?

    If you have taken any benefits prior to 6 April 2024 (or any events have occurred (known as ‘benefit crystallisation events’) which have caused your pension benefits to be tested against your LTA) you will have been given a statement by your pension scheme administrator, sometimes referred to as a ‘benefit crystallisation event certificate’. This will state what percentage of the LTA was used up by the benefits you took from the pension arrangement. 

    You can use this statement to provide evidence to other pension providers of how much LTA you have used. Pension providers will use your historic LTA usage to calculate how much of your LSA and LSDBA were used up by these events. If you have used up all of your LTA before 6 April 2024, your LSA and LSDBA will be nil. 

    If you have some LTA remaining following these events, then the default approach which will be used to work out your available LSA and LSDBA is referred to as the ‘standard transitional calculation’. This calculation will determine the monetary amount of your previously used LTA, a percentage of this monetary amount is then deducted from your LSA and LSDBA. The percentage deducted is 25% (which represents the proportion of your benefits you would typically be eligible to take as a tax-free lump sum), unless you have received a serious ill-health lump sum or lump sum death benefit before age 75. 

    If you believe that as of 6 April 2024 you have received a lower amount in tax-free lump sums than would be provided for by the standard transitional calculation (i.e. because you took less than 25% of your benefits as tax-free lump sums), then before your first relevant benefit crystallisation event on or after 6 April 2024 you may apply for a transitional tax-free amount certificate. This will provide you with an exact valuation of your remaining LSA and LSDBA. The amounts of your LSA and LSDBA as confirmed in the certificate would then be used instead of calculating these using the standard transitional calculation.

    Otherwise, when you take any lump sum benefits on and after 6 April 2024 your pension provider will provide you with a statement, known as a ‘relevant benefit crystallisation event certificate’. This will state, in monetary terms, how much of the LSA and the LSDBA you used taking your lump sum. You will need to provide this to your other pension providers when you are taking any other lump sums so they can work out how much of the LSA and LSDBA you have left.

  • What happens if I have LTA protection?

    If you have a valid LTA protection you will retain your rights to a protected higher tax-free cash amount from 6 April 2024. For example, if you have Fixed Protection 2012 (FP12) you will have a LSA of £450,000 and a LSDBA of £1.8 million instead of the standard LSA and LSDBA amounts.

    If you do not currently have a valid LTA protection you can still apply for Fixed Protection 2016 (FP16) and Individual Protection 2016 (IP16) by the deadline of 5 April 2025. If you apply for FP16 then you will have an LSA of £312,500 and a LSDBA of £1,250,000. If you apply for IP16 then you will have an LSA of 25% of the protected amount set out in your IP16 certificate and an LSDBA of the lower of £1,250,000 or the value of your benefits on 5 April 2016.