Friday, 20 September 2013

Fixed Protection for Pensions 2014

Within the last fortnight, HMRC has finally released the application form (APSS228) for individuals who wish to apply online for Fixed Protection 2014 (FP2014).

However, applying for FP2014 is the easy bit. Deciding upon whether you need to, or should, apply for protection is more complex.

First of all, why has FP2014 been introduced? For the simple reason that the pension Lifetime Allowance reduces from £1.5m to £1.25m on 6 April 2014. Any pension savings above this level will be heavily taxed when benefits are taken.

Who may be affected by this? Any person who did not apply for Enhanced or Primary protection before 6 April 2009, and believes the total value of their pension savings will exceed £1.25m when they take benefits on after 6 April 2014.

Warning 1: Before applying for FP2014, you need to know that this protection will be lost if any of the following events occur:
· You start a new pension arrangement after 5 April 2104, other than to accept a transfer of existing pension rights;
· You (or your employer) make further pension contributions to a ‘defined contribution’ arrangement as your Annual Allowance will reduce to zero;
·  You accrue further benefits in a ‘defined benefit’ arrangement.

We can see therefore that the decision about whether to apply for protection is certainly not straightforward, particularly where an individual is many years from drawing benefits and wishes to continue making contributions, or accrue benefits.

Difficult calculations are often required to arrive at an informed position from which to make a decision. We can help you.

Warning 2: If you are employed, and your employer automatically enrols you into a pension scheme, you have 1 month to opt out. If you fail to do so, FP2014 will be lost.

Watch this space for news of Individual Protection 2014. The government will be announcing the final details of IP2014 later this year.

IP2014 is expected to be available for individuals who have accumulated pension savings of at least £1.25m by 5 April 2014, and wish to continuing making pension contributions/accruing benefits.