15th November 2013 at 5:55pm
In my last blog – The sky is falling on the pension limit fund – I looked into who’s likely to be affected by the pension lifetime allowance (LTA) changes taking place on 6th of April 2014. If you likely to be of the 360,000 people affected you’ll need to take expert advice before April. To help you I’ve highlighted 10 things you need to be discussing with your adviser, here are the first 5…
1. Do I need to apply for Fixed Protection?
This is the biggest, strictly time-bound decision for you and your adviser. Applications need to be received by HMRC before 6 April 2014 and you will need to stop making any further pension contributions after this date to secure the £1.5M allowance.
Your adviser will need up to date valuations on all your pension schemes to assess if your pension pots will exceed £1.25M when you reach your retirement date. So don’t leave it too late as there could be delays in obtaining all the necessary details.
2. Should I apply for Individual Protection?
You need to have pension funds totaling between £1.25m and £1.5m at 5 April 2014 to be able to apply for individual protection. This will give you an allowance equal to the value of your funds at this time.
Unlike fixed protection, you can still continue to pay into your pension. This may be especially valuable if you receive pension contributions from your employer. Any retirement savings over your individual protection, when you come to take your benefits, will subject to the LTA tax charge (55% if taken as a lump sum).
It is possible to apply for both individual protection and fixed protection. This would give you a lifetime allowance of £1.5m (fixed protection) and contributions must stop. If you choose to restart contributions in the future your fixed protection would be lost. But you would still benefit from your individual protection allowance rather than the standard £1.25m LTA.
3. Can’t I just carry on as I am?
Sometimes it’s good to do nothing. No protection might mean paying more tax. But it could still give the best result – particularly if it means continuing to build-up additional years of final salary benefits.
4. Should I think about retiring early?
An alternative if you’re thinking about retiring soon is to take benefits this tax year, even if this wasn’t originally in your plans. Retiring this year will mean you pension fund will be tested against the current £1.5M limit. But you might want to register for protection too, especially if you plan to take income drawdown. This is because there will be another test against the lifetime allowance at age 75, or earlier should you choose to buy an annuity with your drawdown fund.
5. Is it too late to top up my pension?
The current tax year is the last opportunity to make a final top-up payment if you’re applying for fixed protection. Or, if you’re close to retirement, you might want to top-up your pot to take it over the £1.25M threshold. This would trigger eligibility for individual protection.
To be continued…
Tax rules and legislation can change and information is based on our undertsanding of the Law and current HM Revenue and customers practice.