HMRC has published details of the arrangements available for individuals to protect their accrued pension benefits up to the current Lifetime Allowance of £1.5 million when that reduces to £1.25 million from tax year 2014-2015.

Fixed Protection 2014

The Lifetime Allowance is the maximum amount of tax relieved pension benefits that an individual can build up over their life. From tax year 2014-2015 the Lifetime Allowance (LTA) will reduce from the current £1.5 million to £1.25 million.

However, individuals are able to protect their LTA from 6 April 2014 at the 2013-2014 level (£1.5 million) by applying for Fixed Protection 2014 (FP2014). HMRC are providing an online tool intended to assist individuals in deciding whether they should apply for Fixed Protection 2014 (FP2014) (and/or Individual Protection 2014 – see below). This can be found at: http://www.hmrc.gov.uk/pensionschemes/fp14online.htm.

Individuals wishing to apply for FP2014 should do so before 5 April 2014.

If an application for FP2014 is accepted by HMRC, HMRC will send a certificate to the individual which should be then be provided to their pension scheme administrator every time they draw any benefits under the pension scheme (a “benefit crystallisation event”).

In order to retain FP2014, once granted, it will be necessary to comply with the restrictions on any further tax relieved pension saving from 6 April 2014. HMRC provide information about these restrictions and their interaction with FP2014, which can be found at:-

http://www.hmrc.gov.uk/pensionschemes/pension-savings-la.htm

Basically, FP2014 would be lost if the individual has further money purchase contributions and/or has further defined benefit accrual (in excess of permitted revaluation) or if there is a transfer of their rights which is not a “permitted transfer” for these purposes.

Any individuals who, on 6 April 2014, have any of the existing LTA protections - primary, enhanced or fixed protection 2012 – will not be able to apply for FP2014. However if an individual has lost or loses their existing protection before 6 April 2014, they would then be able to apply for FP2014, to give them a protected LTA of £1.5 million from tax year 2014-2015 onwards.

Individual Protection

The UK Government confirmed (in the 2013 Budget) that an individual protection regime would be introduced alongside the reduction in the LTA from £1.5 million to £1.25 million from 6 April 2014. HMRC launched a consultation on individual protection (IP2014) on 10 June 2013, which ran until 2 September 2013.

It is proposed that IP2014 will give individuals a personalised LTA based on the value of their pension savings as at 5 April 2014 (up to £1.5 million), which would allow individuals to continue pension accrual after 5 April 2014 whilst protecting tax relieved pension savings that have accrued up to that date, subject to an overall maximum of £1.5 million.

The consultation was concerned with the detail and implementation of IP2014 and set out a proposed framework of how IP2014 would operate. It is proposed that individuals will be able to apply for both FP2014 and IP2014 but, because of the way the different protection regimes will work, applications for FP2014 and IP2014 cannot be made to HMRC at the same time. Applications for FP2014 must be received by HMRC by 5 April 2014, whereas applications for IP2014 may not be submitted until after 5 April 2014 as a valuation of an individual’s pension savings on this day will be required. HMRC propose that there will be a three year window to apply for IP2014.