The changes to the annual pensions lifetime savings allowance means that the government has launched a consultation about proposals for an individual pension protection regime.
HMRC and the Treasury have published a consultation document about the detail and implementation of an individual protection regime, Individual Protection 2014 (IP14), which comes into force as a result of the reduction in the pensions lifetime allowance (LTA) from £1.5m to £1.25m.
The consultation closes for comment on 2 September 2013.
The government announced on 5 December 2012 that for 2014-15, the LTA would be reduced from £1.5m to £1.25m. This reduction creates a transitional challenge for individuals who may have already built up pension savings in the expectation that the LTA would remain at least at £1.5m.
A transitional protection regime, fixed protection 2014 (FP14) was introduced, to be effected after Finance Bill 2013 receives Royal Assent, to give individuals an LTA of £1.5m from 6 April 2014, subject to conditions.
IP 14 would give individuals a personalised LTA based on the value of their pension savings at 5 April 2014 (up to £1.5m). It will allow individuals to protect from the lifetime allowance charge any pension savings they have on 5 April 2014, which has been accumulated with UK tax relief with a value of between £1.25m (standard LTA from 6 April 2014) and £1.5m (current LTA since 6 April 2012). Individuals will have three years from 6 April 2014 to apply for IP14, which would benefit those who want to continue saving in their pension scheme after 5 April 2014, albeit that they would normally have a lower LTA than with FP14 and will be subject to LTA charges on the additional savings.
IP14 may also benefit an individual whose employer normally contributes towards their pension scheme but, if the individual opted out of the pension scheme, they would not be able to receive the value of those employer contributions in another form such as higher pay. Individuals will be able to apply for both FP14 and IP14, subject to meeting the eligibility conditions.
The consultation covers the detail and implementation of IP14 alongside FP14. It applies to individuals whose UK tax relieved pension savings are close to, or greater than £1.25m; employers who contribute to registered pension schemes on behalf of their employees; and scheme administrators of registered pension schemes and advisers with clients who have UK tax relieved pension savings. It is expected that the final legislation relating to IP14 will be included in Finance Bill 2014.
More details are available HERE