Legal usage of the tax regime to reduce the amount of tax payable is fundamental to any good tax planning strategy.

When it comes to generous tax reliefs, pensions benefit more than most alternative types of savings.

In fact, at every stage of the life cycle of a pension there are tax benefits.

Money paid in receives tax relief, pension investments are exempt from income and capital gains taxes and a tax-free lump sum can be provided when it becomes time to draw pension benefits.

There is also the important matter that pensions are usually exempt from inheritance tax too.

But it remains to be seen whether the Labour Government will continue to honour these incentives. With public finances generally accepted to be in a very bad place, even the most optimistic would view pensions as being vulnerable to tax relief cuts of some sort.

What we do know is that the new pension tax regime introduced in April now appears likely to stay, following the Labour party withdrawing their threat to revoke the legislation. This is clearly welcome news for pensions savers, particularly those with large pension pots.

This means that a key element of the pensions taxation regime is limiting the amount that can be paid as tax-free lumps sums through two allowances, covering both lifetime and death benefits.

However, complication is never far away where pension tax law is concerned. The complication here is that there are alternative methods for calculating an individual’s allowances.

The default calculation essentially assumes that any pension benefits taken (between 6 April 2006 and 5 April 2024) incorporated a 25% tax-free lump sum. Where this matches the reality, it should give accurate allowance deductions and arrive at the correct remaining allowance amount. For most, this will likely be the case.

But what if this broad assumption does not match reality?

Where this is the case, individuals can apply for a certificate (a transitional tax-free amount certificate in pension jargon) so that only tax-free lump sums actually received are taken into account for allowance purposes.

Once a certificate is issued, there is no going back to the default calculation, even in the case where the default calculation would give a more favourable outcome. So, care should be taken to only apply for a certificate which will improve an individual’s allowance.

With that in mind, there are common scenarios where applying for a certificate will be beneficial for an individual’s allowance.

The first, and most obvious, is where benefits were drawn without taking any tax-free lump sums. Individuals who made maximum guaranteed income their priority and opted to use their entire pension funds to purchase a lifetime annuity might fall into this category.

Another scenario is where individuals received any tax-free lump sums in the three-year period between 2016/17 and 2019/20. The actual tax-free lump sum allowance at the time was lower than the current allowance which is used in the default calculation. As a result of this any tax-free lump sums taken in this period are overstated and therefore some remaining allowance is unnecessarily lost.

A further situation when applying for a certificate should be considered is where individuals have attained age 75 before 5 April 2024. Under the previous pension tax regime undrawn money purchase benefits and any growth on drawn benefits used up an individual’s lifetime allowance on reaching age 75. The default calculation will wrongly assume that these events incorporated a tax-free lump sum payment.

Even where lifetime tax-free allowances cannot be improved, it may be the case that the tax-free lump sum allowances on death can be improved. If an individual’s pre-April lifetime allowance has been exhausted, their new lifetime and combined lifetime and death benefit lump sum allowances are set at nil. But applying for a certificate can reinstate an allowance for death pension lump sum purposes.

Even where the deceased did not apply for a certificate themselves, their personal representatives are able to apply.

Crucially, there is a limited window in which you can apply for a certificate. The window closes on receiving a tax-free lump sum payment after April 5 2024. There is no further opportunity to apply thereafter.

So, any review of particular facts and circumstances and considering whether applying for a certificate will give a more favourable outcome will have to be carried out in good time prior to drawing benefits, if tax avoidance, of the compliant type, is to be maximised. As with all complicated pensions matters, it may be wise to seek professional financial advice.

Lee Halpin is head of technical services @sipp