About this document
This Bulletin is based on our understanding of current and proposed legislation and HMRC practice and every care has been taken to ensure it is correct. It is issued by DP Pensions Ltd for use by our SSAS and SIPP clients and their advisers. By its very nature it is a précis and can only be treated as a simplified indication of detailed legislation.
Please note that DP Pensions Ltd is not authorised to give financial advice. We do not know all of your circumstances or details of any other pension schemes of which you are a member. You should contact your financial adviser for help on how these new rules affect you personally.
No responsibility to any third party is accepted if this information is used for any other purpose. The legislation and HMRC practice may change in the future.
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. 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
The Government has introduced a new “Fixed Protection 2014” to protect those clients whose funds do (or may) exceed the new limit of £1.25 million up to the current Lifetime Allowance of £1.5 million.
You must apply for the protection online and the deadline for applying is the 5th April 2014.
How do I decide if I need Fixed Protection 2014?
HM Revenue & Customs has set up an online tool to help you decide whether you should apply for Fixed Protection 2014 and/or Individual Protection 2014. The tool can be found at www.hmrc.gov.uk/pensionschemes/fp14online.htm.
You should also contact your Financial Adviser who will be able to advise you.
Please note that Fixed Protection 2014 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 fixed protection 2014, giving you a protected Lifetime Allowance of £1.5 million from 2014-2015 onwards.
How do I apply for Fixed Protection?
If you decide that you want to apply for Fixed Protection 2014 you should notify HM Revenue & Customs by completing their online form. The form can be found at 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 Fixed Protection 2014?
If you have successfully applied for Fixed Protection 2014 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.
More information about these restrictions and Fixed Protection 2014 can be found at www.hmrc.gov.uk/pensionschemes/pension-savings-la.htm.
Individual Protection 2014
In addition to Fixed Protection 2014, the Government has also announced that it will introduce an Individual Protection 2014. However, the details of this have not yet been decided. The Government launched a consultation on this subject on the 10th June 2013 and this runs until 2nd September 2013. It is proposed that members will be able to apply for the protection from the 6th April 2014 and that they will have three years in which to make their application. More information about Individual Protection 2014 will be provided once they are known.
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’.