The rules on tax relief for pensions were changed not that long ago and may have affected a number of clients. Well, they are set to change again, to reduce the annual allowance (AA) to £40,000 and the standard lifetime allowance to £1.25m from 6 April 2014 onwards.
The amount of pension savings that will count towards the AA for 2014/15 is the total of savings made in 'pension input periods' that end in that year.
Fixed protection 2014
A transitional protection regime (fixed protection 2014) for those with UK tax relieved pension rights of more than £1.25m or who estimate that they may have rights in excess of £1.25m by the time they take their pension benefits. Individuals need to notify HMRC by 5 April 2014 to ensure fixed protection 2014. This only applies to those who do not have primary protection, enhanced protection or fixed protection under para 14 Sch 18 FA 2011.
Individuals with fixed protection 2014 will be entitled to a personal lifetime allowance of the greater of £1.5m and the standard lifetime allowance. Fixed protection 2014 will be lost if:
- there is a benefit accrual;
- there is an impermissible transfer;
- there is a transfer of sums or assets that is not a permitted transfer; or
- a new pension arrangement relating to the individual is made otherwise than in permitted circumstances.
Individual protection 2014
The Government has decided to introduce a new protection, known as Individual Protection 2014, which can be claimed by any individual who is a member of a UK registered pension scheme or a relieved member of a relieved non-UK pension scheme. They must have a relevant amount as at April 2014 greater than £1.25m and must not have opted for 'primary protection', which was available when the new pension arrangements came into effect in 2006.
There is no restriction on applying for individual protection 2014 if the individual holds 'enhanced protection', which was also available in 2006 and claims can be made up to 5 April 2017.
In simple terms, individual protection 2014 will give a lifetime allowance of:
- if their relevant amount exceeds £1.5m, the greater of £1.5m or whatever is the standard lifetime allowance; or
- otherwise, the greater of the standard lifetime allowance and the individual's relevant amount.
Obviously, clients may wish to review their positions as a matter of urgency, so help them keep ahead of the game.