Pensions – Important Changes

Important Changes to the Lifetime Allowance, Fixed Protection 2014, Individual Protection 2014, Annual allowance that may require your attention.

The Lifetime Allowance to reduce from £1.5 million to £1.25 million
The Lifetime Allowance is the maximum amount of pension savings, that an individual can accumulate free of tax, across all pension funds, including Final Salary Benefits. The Lifetime Allowance is currently £1.5 million (for the 2013/14 tax year). However, this will be reduced to £1.25 million from the 6th April 2014.

Fixed Protection 2014 (FP14) – Deadline to apply is 5th April 2014
The Government has introduced a new “Fixed Protection 2014” (FP14) to protect those clients whose funds do (or may) exceed the new limit of £1.25 million up to the current Lifetime Allowance of £1.5million. You must apply for the protection online and the deadline for applying is the 5th April 2014.

How do I decide if I need FP14?
HM Revenue & Customs has set up an online tool to help you decide whether you should apply for FP14 and/or Individual Protection 2014.

The tool can be found at http://www.hmrc.gov.uk/pensionschemes/fp14online.htm

However this is a very complex area and you may wish to seek an experts opinion, Warren is happy to help.

Please note that FP14 is only available if you don’t have any of the existing Lifetime Allowance protections on 6th April 2014. Those protections are primary, enhanced or fixed protection 2012. If you have one of these protections you should check that the particular protection you have remains valid. If the existing protection is lost before 6 April 2014, then you will be able to apply for FP14, giving you a protected Lifetime Allowance of £1.5 million from 2014-2015 onwards.

How do I apply for FP14?
If you decide that you want to apply for FP14 you should notify HM Revenue & Customs by completing their online form. The form can be found at http://www.hmrc.gov.uk/pensionschemes/fp14online.htm The deadline for submitting the form is the 5th April 2014.

HM Revenue & Customs will provide you with an immediate confirmation of receipt when you submit your online application. Once they have processed and accepted your application, they will also send you a certificate which you should show to your pension scheme administrator every time you take any benefits from your pension scheme(s).

How do I make sure that I do not lose FP14?
If you have successfully applied for FP14 then to keep this protection there are restrictions on any tax relieved pension savings that you can make from 6 April 2014. The basic requirement is that no further contributions can be paid into any pension schemes for you from that date. This includes accruing benefits in a final salary pension scheme. 

Individual Protection 2014 (IP14) – Deadline 5th April 2017
In addition to Fixed Protection 2014, the Government is also introducing an Individual Protection 2014 (IP14). We received more information on this protection last month when HM Revenue & Customs issued Guidance Notes. If you have pension savings on the 5th April 2014 which have a value of more than £1.25 million, IP14 will allow you to protect those savings (up to a value of £1.5 million), as long as you do not already have primary protection in place.

IP14 will give you a protected lifetime allowance equal to the value of your pension savings on 5th April 2014 subject to an overall maximum of £1.5 million. Unlike FP14, there are no restrictions on future pension savings. However, if your pension savings exceed your protected lifetime allowance the excess will be subject to the lifetime allowance charge when you crystallise your benefits.

IP14 will operate from 6th April 2014. However, the protection will not be available until after the Finance Bill 2014 has received Royal Assent. The form to apply for IP14 (APSS240) will also not be available until the supporting regulations come into force which HMRC estimate to be around August 2014. The deadline to submit your IP14 application form to HMRC is 5th April 2017.

The Annual Allowance
The Annual Allowance is the total amount that can be contributed to pension schemes for an individual each year that will qualify for tax relief. It is currently £50,000 per annum for the 2013/14 tax year. However, this will be reduced to £40,000 from the 6th April 2014.

For people who do not use all of their annual allowance in a particular year, they can carry forward any unused relief for up to three years, provided they were a member of a registered pension scheme during the period. The Government has confirmed that the amount that will be available to be carried forward will be based on the annual allowance that was applicable in the year that the member is carrying forward from.

Please note that other thresholds also apply to contributions. Individuals will only receive tax relief on personal contributions up to 100% of relevant UK earnings; and Employers will only receive tax relief on company contributions where the contribution is ‘wholly and exclusively for the purposes of the business’.