"With further changes to pension taxation likely in the coming years, the need for clear, concise advice that is relevant and timely is of increasing importance."
There have been numerous changes to the Lifetime and Annual Allowances over the past few years, and the multiple options to protect those allowances have equally been revised and updated too.
This has inevitably resulted in creating an ever-increasing level of complexity, and with HMRC today making the online registration for Individual Protection 2016 (IP16) and Fixed Protection 2016 (FP16) available, this blog aims to clarify what this actually means for individuals.
Details of these new 2016 protections and Individual Protection 2014 (IP14) are set below. Unlike with IP14, there is no time limit for registration for IP16 and FP16, but individuals will be required to do so before accessing any of their benefits. Individuals will require HMRC values of all their pensions as at 5 April 2016 to complete the registration for IP16.
From now on anyone who wants to apply for lifetime allowance protection can only do so online!
This will require them to register for an online account on the Government Gateway, which will reduce the workloads for HMRC and increase it for individuals and their advisors!
The LTA is the maximum level of benefits that an individual can draw from all registered pension schemes without incurring (additional) tax charges. From 6 April 2016, the LTA was reduced to £1 million and HMRC has introduced two new LTA protection regimes:
- for individuals whose HMRC value of all their pension savings as at 5 April 2016 is greater than £1 million. IP16 gives a protected LTA equal to the value of the individual’s pension savings at 5 April 2016 up to a maximum of £1.25 million. Individuals with IP16 can continue to make pension savings, but savings above their protected LTA will be subject to a LTA tax charge.
- for individuals who wish to retain a protected LTA of £1.25 million. These individuals are not permitted to earn any further benefit from, or contribute to, any pension savings after 5 April 2016, i.e. they need to have opted out of their pension scheme(s) on or before that date.
In addition, it is still possible to register for Individual Protection 2014 (IP14). IP14 is available for individuals whose HMRC value of all their pension savings was greater than £1.25 million as at 5 April 2014 and gives a protected LTA equal to the value as at this date up to a maximum of £1.5 million.
It is worth noting that individuals who qualify for IP14 should ensure their online application is received by HMRC by 5 April 2017. HMRC will not accept any application for IP14 received after this date.
With further changes to pension taxation likely in the coming years, the need for clear, concise advice that is relevant and timely is of increasing importance. Senior individuals need to be fully aware of the options available to them in order to navigate this mounting complexity, and effectively plan a successful retirement solution.