Pension Lifetime Allowance 2014.
On 6th April 2014 the Lifetime Allowance for pensions reduced from £1.5m to £1.25m.
What is the Lifetime Allowance?
Introduced in 2006, the Lifetime Allowance is the maximum amount that any individual is allowed to accumulate in pension funds during their lifetime.
Calculating the Lifetime Allowance:
What if I exceed the lifetime allowance?
Lifetime Allowance 2014 Reduction - A £137,500 Extra Tax Bill
The effect of reducing the Lifetime Allowance from £1.5m to £1.25m on 6th April 2014, could prove financially very costly.
The Lifetime Allowance is being reduced by £250,000. This means that if you are affected and take no action to protect yourself, this would mean a tax charge of 55% on the £250,000 allowance lost = £137,500 Tax Charge.
What can I do to protect myself?
The Government has allowed that if you are already in excess of the new allowance, you can take action to protect yourself by Registering for Fixed Protection 2014 or Individual Protection 2014.
1. Lifetime Allowance Fixed Protection 2014.
Fixed Protection 2014 is basically the same as the fixed protection scheme for 2012 (when the Lifetime Allowance was reduced from £1.8m to £1.5m).
6th April 2014, Lifetime Allowance reduces from £1.5m to £1.25m. You can protect your pension fund from this cut and the addition tax charges.
Fixed Protection 2014 is available to
What does Fixed Protection do?
You lock in your Lifetime Allowance at £1.5m and this may increase in line with CPI or other increases as the Government/HMRC allow in the future.
Can I still pay into investment linked/money purchase/defined contribution pension schemes?
Can I still accrue additional pension rights under salary related pension schemes such as a Final Salary Scheme?
You can register directly with HMRC for Fixed Protection 2014 by downloading their registration form. This must be applied for by the end of the tax year in 2014 i.e. 5 April 2014.
Download Fixed Protection Application Form.
Double Up Your Protection: Whilst registering for Fixed Protection, you can also after 6th April 2014 register for Individial Protection as a safeguard, just in case you lose fixed protection. This is different to Fixed Protection 2012 or Primary Protection back in 2006, where this was not possible.
Individual Protection for the Lifetime Allowance 2014 reduction offers a new concept and option for many pension savers.
For other protection elements offered for previous changes such as Enhanced, Primary or Fixed Protection 2012, if you accrue further pension rights, you lost your lifetime allowance protection.
Individual Protection 2014 offers the facility to continue to build up pension benefits after registering for Individual Protection.
The Basic Rules
Why would you carry on paying in or accruing pension rights?
We understand the argument that paying in or accruing further pension rights despite a potential tax charge at 55% for the excess over your personal lifetime allowance may not appear advisable.
The reality is that you can still continue to accrue pension rights and if:
Not Quite at £1.25m?
Consider making additional contributions to pension now to take your fund value above £1.25m so that you can register for Individual Protection, so that you can continue to build up further rights.
When can I register with HMRC for Individual Protection?
You can register for Individual Protection with HMRC from 6th April 2014 when you know exactly what the value of your pension fund was on 5th April 2014.. Registration is possible until 2017.
Other Considerations After Registering for Individual or Fixed Protection
This Lifetime Allowance cut may force you to consider:
Contact our team now for pension contribution advice and how to register for protection.