Protecting Your Lifetime Pension Allowance

The lifetime allowance governs the relief made available to those with large pension funds. As the economic downturn rumbles on, the government has once again turned its eye to these tax-efficient pension schemes and with deadlines looming, time is running out for individuals to protect themselves against steep tax charges.

From 6 April 2014, the lifetime allowance is being reduced from £1.5 million to £1.25 million. The Government is therefore introducing two new forms of protection in the form of “fixed protection” and “individual protection”.

Fixed Protection 2014

Fixed Protection 2014 (“FP14”) is a form of tax protection, which entitles individuals to a lifetime allowance of £1.5 million. An individual is entitled to FP14 if he has one or more arrangements under a registered pension scheme and he has not already claimed fixed or enhanced protection.

FP14 allows individuals to preserve their lifetime allowance at the current level of £1.5 million, which means that they can continue to enjoy the generous level of tax relief. However, the individual cannot continue to further contribute or accrue further benefits in relation to the pension scheme.

Individuals with FP14 can also lose protection if there is an impermissible transfer relating to the individual into the particular scheme, if there is a transfer of sums and assets to or from the scheme that is not a permitted transfer, or the individual starts a new arrangement under a registered pension scheme.

Individuals must apply for Fixed Protection 2014 before 6 April 2014 and this deadline should be taken seriously.

Individual Protection 2014

Individual Protection 2014 (“IP14”) is a form of transitional relief, which entitles individuals to a personalised lifetime allowance based on the value of their pension savings as at 5 April 2014 (up to a maximum of £1.5 million). An individual is entitled to IP14 if he has one or more arrangements under a registered pension scheme, his total pension saving exceeds £1.25 million and he has not already claimed primary protection.

Individuals have three years to apply for Individual Protection from 6 April 2014.

The decision about whether or not to protect is not a straightforward one and all individuals affected should seek clear advice. Regular reviews will also be critical post-protection to ensure that it continues to be beneficial to retain protection.

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

Tim Green

Partner - Head of Pensions

I am a Partner in the Pensions team with a broad advisory, transactional and dispute resolution practice.