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Pensions – Changes to the Lifetime Allowance

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The Government has announced a further reduction in the lifetime allowance from £1.5 million to £1.25 million with effect from 6 April 2014

The lifetime allowance is the amount that your pension pot is valued at the point of drawing your benefits. Any amount in excess of this is subject to a lifetime allowance charge.

This will affect those with pension pots over this amount who are:
1) active members of pension schemes who have not drawn their benefits
2) deferred members of pensions who have not drawn their benefits
3) retirees who have drawn pension schemes but still have other pensions to take, including private pensions and income drawdown policies.

You may have HMRC protection in place but it is essential that this is reviewed in line with the impending changes.

HMRC are offering lifetime allowance protection for those who may be affected by this reduction.

Fixed Protection 2014

Fixed Protection 2014 will allow individuals to protect their pension pots up to £1.5 million. In order to qualify for Fixed Protection you will need to apply to HRMC before 6 April 2014.

In order to qualify for Fixed Protection you will not be permitted to make any further pension contributions to all pension schemes after 6 April 2014.

You cannot apply for Fixed Protection 2014 if you already have Enhanced or Primary Protection. It is possible to revoke previous protections but advice should be taken before this is actioned.

Individual Protection 2014

As well as Fixed Protection 2014, the Government has announced that individual protection 2014 will be available.
Individual Protection will give you a lifetime allowance equal to the value of your pension rights on 5 April 2014 up to an overall maximum of £1.5 million.

Your pension pot must be at or above £1.25 million on 5 April 2014.

You will not lose Individual Protection 2014 by making further savings into your pension scheme.

You can apply for Individual Protection 2014 if you have Fixed Protection 2012, Fixed Protection 2014 or Enhanced Protection but not Primary Protection.

It is important to understand how these changes may affect your pension benefits and take action if required. We would recommend that you take independent financial advice prior to making any changes to your existing HMRC cover or membership of your NHS Pension Scheme.

If you have any concerns regarding these issues, or you would like further information, please contact a member of our healthcare team.