HMRC has published details of a new individual protection regime which will allow people with pension savings of more than £1.25 million to protect the value of their pot from a tax charge and continue contributing to a pension scheme.
Chancellor George Osborne confirmed the Government will cut the lifetime allowance (the level before the tax charge kicks in) from £1.5 million to £1.25 million from April 2014. A charge of up to 55% applies on assets above this limit.
Under the ‘individual protection’ regime, savers will be able to apply for a personalised lifetime allowance, up to a maximum of £1.5 million, based on the value of their pension on 5th April 2014. Savers will have three years to apply from 6th April 2014 and still be able to contribute to their pension, subject to lifetime allowance charges.
The other option is the proposed ‘fixed protection’ rules will allow individuals to ‘lock in’ to a lifetime allowance of £1.5 million, provided they do not make any further pension contributions and apply for the new protection before 6th April 2014.
HMRC says the Individual protectionoption will attract people who receive large employer pension contributions which cannot be converted into other benefits, like higher pay. HMRC says; ‘’Offering the option of individual protection as well as fixed protection will provide greater flexibility for this group to choose the most appropriate protection regime for their circumstances.’’
Our belief is Individual protection will be a useful option for a number of investors People will need to work out what their funds will be worth in the future before deciding how to proceed. The complex nature of these calculations means advice will be essential. Individual protection could mean some will receive a higher pension in retirement than they would under fixed protection because it allows them to continue contributions.
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