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Pensions: protecting your lifetime allowance
Did you know that it is still possible to apply to protect your pension(s) against previous reductions in the lifetime
allowance? The lifetime allowance is set at £1 million in 2017/18, however Fixed Protection and Individual Protection
may mean it is possible to save up to £1.25 million without incurring a tax charge.
What is the lifetime allowance?
The lifetime limit sets the maximum figure for tax-relieved savings
in a pension fund. The lifetime allowance fell to £1.25 million on
6 April 2014, and then again to £1 million on 6 April 2016. From
April 2018 onwards the lifetime allowance will increase annually in
line with the Consumer Prices Index (CPI), rising to £1,030,000 for
the tax year 2018/19.
Where the value of the scheme(s) exceeds the lifetime limit when
benefits are drawn, there is a tax charge of 55% of the excess if
taken as a lump sum, and 25% if taken as a pension.
Protecting your allowance
However, the good news is that it may be possible to apply
for protection where an individual has significant pension
contributions. There are two types of protection available.
The first is known as ‘Individual Protection 2016’. This
enables savers to fix their lifetime allowance at the
value of the fund at 6 April 2016, provided
the fund has reached at least £1 million
in value at that date. However,
the value to be protected
cannot exceed
£1.25 million.
Further contributions are allowed under this protection, but
withdrawals exceeding your protected lifetime allowance will be
subject to tax. You cannot apply for Individual Protection 2016 if
you have either Primary Protection or Individual Protection 2014. In
most cases you can check whether you already have protection by
signing in to your online account.
The other type of protection is known as ‘Fixed Protection 2016’
and will be of benefit if total pension savings are expected to
exceed £1 million when the savings are accessed in the future.
Fixed Protection retains the £1.25 million lifetime allowance. A
critical condition for this protection is that no further contributions
can occur from 6 April 2016 (except in limited circumstances).
You cannot apply for Fixed Protection 2016 if you already have
Enhanced Protection, Primary Protection, Fixed Protection or Fixed
Protection 2014.
How do I apply?
Applications for Individual and Fixed Protection can be made
online, although you will need to set up an account to use
HMRC online services. There is currently no deadline for
making applications.
After applying for lifetime allowance protection, you will receive
a protection notification number and a scheme administrator
reference. Your scheme administrator will require these numbers
when you decide to take money from your pension scheme.
The pensions rules are notoriously complicated and
individuals should seek professional advice to ensure
that their savings are as tax-efficient as possible.
February 2018
inside this issue…
u Introducing ‘Simple Assessment’
u Are you setting the right price?
u Analysing the Criminal Finances Act
2017
u Business Round-up
u Web Watch
u Reminders for your diary
T O P I C A L I N F O R M A T I O N F R OM M A G E E G A MMO N
Henwood House, Henwood,
Ashford, Kent TN24 8DH
Phone: 01233 630000
Email:
Website:
Principals: Jon Gammon, Antony Tutt, Mark Britland, Abhi Jain, Roland Parry, Andy Childs
Managers: Julie Devine, Linda Hayward, Peter Horton, Barry Spokes, Andy Vanburen, Steven Wanstall
Magee Gammon is a trading style of Magee Gammon Partnership LLP and Magee Gammon Corporate Limited.
Registered to carry on audit work in the UK and Ireland, and regulated for a range of investment business activities by the Institute of Chartered Accountants in England and Wales.