As we have mentioned in our previous pensions publications, for the tax year from 6 April 2014, the standard lifetime allowance (i.e. the total amount of tax free pension savings that can be built up by a member in a registered pension scheme) has reduced from £1.5 million to £1.25 million. However, it was possible for individuals to protect their pension savings between £1.25million and £1.5million from the lifetime allowance charge by applying for 'Fixed Protection 2014'. The deadline for applying for Fixed Protection 2014 ('FP 14') was 5 April 2014.
However, under the Finance Bill 2014 a new form of protection ('individual protection 2014' or 'IP14') will be introduced for individuals who have pension savings of more than £1.25 million as at 5 April 2014, provided that they do not already have primary protection (one of the forms of tax protection that was used in April 2006). Individuals with IP14 will have a personalised lifetime allowance ('LTA') of the value of their savings on 5 April 2014 subject to an overall limit of £1.5million. A significant difference between this and FP14 is that an individual with IP14 can continue to actively save in a registered pension scheme after 5 April 2014 without losing that protection; however, they will have to pay the lifetime allowance tax charge on any extra savings over and above their personalised LTA when they take their benefits.
Individuals who have FP 14 will also be able to apply for IP14, but FP14 will take precedence, and if FP 14 is lost in those circumstances, then IP14 will apply. The deadline for applying to HMRC for IP14 is 5 April 2017 whereas applications for FP14 were required by 5 April 2014.