NEWSLETTER: CHANGES COMING INTO FORCE ON 6TH APRIL 2014
Contributed by MW Pensions
11 February, 2014
Annual Allowance reduced
We remind you that the Annual Allowance reduces to £40,000 from £50,000 for the 2014/15 tax year. Unused Annual Allowances from previous years can be carried forward for up to 3 years. The Annual Allowance has been £50,000 since 2011/12.
So if someone paid pension contributions as follows:
They can contribute up to £40,000 + £20,000 + £10,000 + £25,000 = £95,000 in 2014/15.
Lifetime Allowance reduced
This is reducing yet again from 6th April 2014 to £1,250,000. There is already political talk of it reducing even further in future years – it is Liberal Democrat policy to reduce it to £1M.
Fixed Protection 2014
Those who have a pension pot in excess of £1.25M can apply for Fixed Protection 2014. The forms are available online and time is running out. Anyone who has Fixed Protection 2014 must NOT pay any pension contributions at all (or have any paid on their behalf) after 5th April 2014. If they do, they will lose their protection.
Individual Protection 2014
HMRC has confirmed the introduction of Individual Protection 2014 (IP2014) from 6th April 2014. The legalities will be contained within the Finance Act 2014, so as yet these are only in draft clauses of the Finance Bill 2014 that is yet to be published!
IP2014 will be available to anyone who has total pension rights in UK Registered Pension Schemes in excess of £1.25M as at 5.4.14. They will be able to apply for their own personal Lifetime Allowance -which will be the value of their total pot as at 5.4.14, subject to a maximum of £1.5M
Unlike those who have Fixed Protection 2014, someone with IP2014 will be able to make (or have made on their behalf) pension contributions after 6.4.14. However, if there are any benefits in excess of their personal Lifetime Allowance when they crystallise their benefits, the excess will be subject to additional tax charges.
What this means is that if someone has IP2014 and for whatever reason the value of their pension assets has a sustained fall in value eg due to a fall in stock market securities or a commercial property held by their pension fund, they will have the opportunity of topping up their pension assets again.
There are some other pertinent points relating to IP2014:
- HMRC has indicated that the application forms will be available by “mid-August 2014” and they will need to be submitted to HMRC by 5th April 2017.
- Those who already have either Enhanced Protection or Fixed Protection 2012 can apply for IP2014.
- Those who have Primary Protection cannot apply for IP2014, as their existing protection will already exceed £1.5M
- Anyone who is eligible for IP2014 can also apply for Fixed Protection 2014 – but of course if they apply for Fixed Protection 2014 they must ensure that there are no pension contributions post 5.4.14.
Gilt Yield for Drawdown
The gilt yields to be used for drawdown calculations are:
We do not give financial advice and no comments here are intended as such. The above information is based on our understanding of the legislation governing pensions at the time of writing. Before taking any action you should consult a qualified financial and/or tax adviser. Levels, bases of and reliefs from taxation may be subject to change.
This Newsletter is intended for professional advisors only, not members of the general public
Authorised and Regulated by the Financial Services Authority
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