Fixed or individual: what protection do you need on pensions?

HM Revenue & Customs (HMRC) has published guidance on how to apply for the new version of fixed protection for the pension lifetime allowance, which will be reduced from £1.5 million to £1.25 million from 6 April 2014, writes Milsted Langdon Financial Services’ Steve Horton.

Dentists are among the clients we have seen who will be affected by this. To benefit from fixed protection, it will be necessary to make an election by 5 April 2014 so action may be required now to decide on the right option for you.

According to HMRC, if a saver has more than £1.25 million in a pension savings account, or has plans to make that level of savings in the expectation that the lifetime allowance would not reduce from the 2013-14 level, they can use the new form Fixed Protection 2014.

The benefit of the Fixed Protection 2014 option is that the claimant will potentially receive a higher lifetime allowance of £1.5 million. However, the downside is that they will be unable to build up any further pension entitlement after April 2014.

Fixed Protection 2014 will operate in the same way as Fixed Protection 2012 and will only be lost if benefit accrual occurs. For money purchase schemes, this rules out further contributions.

The government also plans to introduce a new protection regime, called individual protection, which will give savers a lifetime allowance equal to the value of their pension rights on 5 April 2014, as long as that value does not exceed £1.5 million.

To claim individual protection, the claimant will have to know what all their pensions are worth on 5 April 2014. This could create difficulties, as most people will be unaware of exactly how much their pensions are worth until well after the deadline. However, they will have three years to claim individual protection.

Milsted Langdon Financial Services can provide expert guidance on applying for fixed protection 2014 and whether you may also need to apply for individual protection 2014. For more information on protecting your pensions lifetime allowance, or other wealth management issues, please contact us.

Posted in Dentists.