Posted April 5th, 2013
Those members that have Primary Protection certificates that have previous benefit crystallisation events will have these revalued by reference to s standard lifetime allowance of £1.5m from 6th April 2014.
The introduction of the revaluation is intended to prevent Benefit Crystallisation Events prior to 6th April 2014 suffering devalue due to the reduction of the standard lifetime allowance to £1.25m which in turn increases the value of the lifetime allowance that remains within primary protection.
The following examples highlight this. Both examples are based on a primary protection certificate with an enhancement factor of 1 i.e. the pension savings at ‘A-day’ were valued at £3 million. The first benefit crystallisation event was in 2011 when £1.8 million was crystallised.
Example 1 illustrates what the change is and in Example 2 we demonstrate what the situation would be without the change.
Example 1 – Primary Protection – Budget Change
Second BCE commenced in 2014/15.
Previous BCE is revalued to £1.5 million = £1.8 million x (£1.5 million / £1.8 million)
Personal lifetime allowance available £2.1 million = (2 x £1.8 million) – £1.5 million
Example 2 – Primary Protection – Without Budget Change
Second BCE commenced in 2014/15.
Previous BCE is revalued to £1.25 million = £1.8 million x (£1.25 million / £1.8 million)
Personal lifetime allowance available £2.35 million = (2 x £1.8 million) – £1.25 million
Posted April 4th, 2013
Those members who have either an enhanced, enhanced (dormant primary), or primary protection certificate without lump sum protection are entitled to a pension commencement lump sum of 25% of the available standard lifetime allowance.
This obviously means that when the standard lifetime allowance limit is reduced to £1.25 million from 6th April 2014 that the benefit could potentially drop to a level that is less than the ‘A-day’ value. There is provision within the Finance Act 2013 that will enable these members to retain a right to a lump sum of up to 25% of £1.5 million.
Posted April 3rd, 2013
This announcement was made in the Autumn Statement and is going to be accessible to those individuals that have pension rights at 5th April 2014 of more than £1.25 million. No existing protections are allowed.
Personalised protection will enable individuals to continue to accrue pension benefits after 5th April 2014. Therefore somebody with personalised protection will acquire a lifetime allowance equal to the higher of the standard lifetime allowance or the value of the pension savings on 5th April 2014 which will have a maximum value of £1.5 million.
Following the proposal in the 2012 Autumn Statement the Government were in discussions with stakeholders on this issue. The discussions must have been favourable as they now intend to consult upon it in Spring 2013. The details will be contained in the Finance Act 2014!
Posted March 21st, 2013
In yesterday’s budget, George Osborne confirmed the Government’s intention to consult on an additional individual protection regime ahead of the lifetime allowance reduction from £1.5m to £1.25m in 2014.
This will be an additional protection regime to fixed protection (which will be similar to the April 2012 variant) and is to be welcomed.
We understand that the full guidance should be available in Summer 2013 and legislation will be included in Finance Bill 2014.
With many more people caught by this reduction NOW is the time to review your current pension position and see which route works best for you.
You can call me on 01204 663904 for a free initial consultation.
Posted March 13th, 2013
The planned reduction in the Lifetime Allowance in 2014 has the potential to catch more and more people out.
Not only is it an issue for those savers close to their retirement age who have amassed sizeable pensions and are considering what to do next but also those savers looking to accumulate benefits.
Where final salary benefits are involved the Lifetime Allowance has the most potential to cause problems but it affects money purchase too.
Take two examples.
In 2006 when the Lifetime Allowance was £1.5m the maximum pension commencement lump sum (tax free cash to you and I) was £375,000. With the reduction to £1.25m this now means a lump sum of £312,500.
(This can have unexpected consequences where tax free cash has been drawn previously too).
With the considerable reduction in annuity rates over this period we are seeing c. 30% reductions in the pensions that could have been taken in 2006 with what is available now.
Plus, consider someone with a pension pot of £500,000 now who decides not to contribute but receives a return of 5/6% per annum. If the Lifetime Allowance does not increase further then they will be getting close to the LTA within 15 years!
So many many more pension savers are going to be caught by this legislation change. Don’t make the same mistakes and get in touch today.
Posted February 18th, 2013
The Annual Allowance change is likely to affect many more people than the Lifetime Allowance reduction.
The Annual Allowance is to be reduced from £50,000 to £40,000 from 6th April 2014. However, if you haven’t used your allowance up from 2013 and you can carry the remainder forward up to £50,000.
You can carry forward unused allowance from the previous 3 years assuming you were a member of a registered pension scheme during each year.
If you contributed £37,000 in 2011/12, 2012/13 and 2013/14 then the maximum you can contribute in 2014/15 will be £79,000. That is £13,000 x 3 (the carry forward unused allowance from the previous 3 years where the limit is £50,000) + £40,000 (the new limit from April 2014).
It’s worth making sure that you’re not going to get caught out. Anything contributed over the Annual Allowance will be subject to a stomach churning 55% tax!
Posted February 18th, 2013
Let’s have a quick recap of the key points of the changes to Lifetime Allowance.
From early April 2014 the maximum amount that you can contribute to your pension during your entire life will drop from £1.5m to
£1.25m. Therefore, anything that you have in your pension pot over the limit will be subject to a 55% tax charge.
Let’s say you currently have a pension pot of £1.47m. This means that you will be over the new limit by £220,000. That amount will be taxed at 55%. £220,000 X 55% = £121,000.That’s a pretty hefty amount right there! Surely nothing to be sneezed at.
The government is introducing two methods of protection; but as always, there’s a catch.
Fixed protection will enable you to secure maximum benefit of the greater of £1.5m or the Standard Lifetime Allowance. If the legislation changes in the future and we see a rise in Lifetime Allowance then you will benefit from that. You have to apply by the 6th April and (here’s the catch) the protection will be lost if any further contributions are made or if there are any further benefits accrued after that date.
Personalised protection means that the maximum benefits for the member will be the greater of an individual’s pension rights on the 5th April and the Standard Lifetime Allowance. So if your pension pot is valued at the afore mentioned £1.47m then all well and good and(!) you can carry on contributing……….or can you?
The problem is that we can’t know for sure until we can get a look at the small print and even then, applying that small print and testing an individual’s allowance can prove to be a bit of a challenge in itself.
Bottom line is that it’s never too early to start getting some advice on such matters. It can save you a lot in the long run and make sure you’re prepared for the caveats in the small print.
Image Credit: Flicker.com/andercismo
Posted February 14th, 2013
That’s the maximum tax free cash to me and you and a recent announcement means it is due to fall by over 16%.
In December George Osborne’s autumn statement the Lifetime Allowance is being reduced again from £1.5m to £1.25m from April 2014 and with it the amount you can take as a pension commencement lump sum (tax free cash) will fall by over 16%.
Currently, the maximum allowed is 25% allowing for a lump sum of £375,000, whereas post April 2014 the amount drops to £312,500.
In particular, this affects those pension savers who applied for Enhanced Protection at A day (6 April 2006). The government is proposing two new forms of protection – fixed protection and “personalised” protection.
So now really is the time to start to review your pensions to see if drawing benefits before 6 April 2014 is in your best interests. If you have protection in place already it will be imperative to ensure it is the correct type and for those without protection to consider the new forms.
Call now on 01204 663904 or email me to book a free review of your pensions.
Posted January 6th, 2012
The reduction in the lifetime allowance from £1.8m to £1.5m from April 2012 is throwing up some interesting planning opportunities.
Take this example.
Client has benefits of £1.5m in two pensions split equally. For the sake of this example we will assume that no protection is held currently either enhanced or primary protection and the client does not want to go for fixed protection.
If we assume that one of the benefits is drawn before 6 April 2012 whilst the lifetime allowance is £1.8m this equates to using up c. 42% of the lifetime allowance as opposed to 50% of the £1.5m allowance if the client draws after after 5 April 2012.
This leaves 58% of the lifetime allowance free for 2012 onwards as opposed to 50%. This extra 8% equates to £120,000 of allowable pension benefit.
Of course, there may be a number of reasons not to draw benefits now and fixed protection may also be appropriate. But with opportunities like this presenting itself and only 4 months left to implement any planning the time for advice on the lifetime allowance is now.
If you are affected and would like to chat about your pension planning, why not get in touch for a free no obligation chat on 01204 663904 or email email@example.com
Posted September 26th, 2011
If you are considering fixed protection then time is ticking – From April 06 2012 the Lifetime Allowance will reduce from £1.8m to £1.5m.
This will have significant impact on clients with pension values above the Lifetime Allowance.
To claim fixed protection you will need to not make any contributions to a money purchase arrangement after 2012, not set up a new arrangement unless you are transferring to it. Your application needs to have been made by 05 April 2012.
So if this is an issue, and you would like to talk, call me on 01204 663904 or email Phil@white-well.co.uk