"Government's first duty is to protect the people, not run their lives."
The Government has decided to offer yet more levels of protection for those lucky enough to have large pension funds. The two new protections available are Fixed Protection 2016 and Individual Protection 2016.
The Standard Lifetime Allowance
As defined by the Pensions Advisory Service, the Lifetime Allowance (LTA) is “a limit on the amount of pension benefit that can be drawn from pension schemes – whether lump sums or retirement income - and can be paid without triggering an extra tax charge”.
On 6 April 2016, the standard LTA was reduced from £1.25 million to £1 million.
You might though be able to protect your pension pot from these reductions.
HM Revenue & Customs (HMRC) recently launched a new online service for individuals to apply to protect their pension savings via the new protections (applications can only be made online – paper applications are no longer accepted).
Looking at the Government website the following table provides a comparison of the two new forms of protection together with the existing Individual Protection 2014.
Choosing which protection is suitable for you and other pension related queries can be complicated, so please make sure you discuss them with your COURTIERS Adviser, as they are always here to guide you.
Standard Lifetime Allowance is a monetary amount that people could build throughout their lives in pension contributions, so effectively we all know the simple rules in terms of pensions; you build up a pension pot when you come to retirement, you would like to take some of it tax free and the government will allow you to do that. The rest of it will be taxable income at your marginal tax rate, however, if you go above the Standard Lifetime Allowance which the current limit is £1m, then you have to pay additional charges.
On the last budget in March 2015 the government announced that they will reduce it from £1.25m to £1m as from 6th April 2016. However, luckily they’ve also introduced some new protections which come in force this April – 6th April 2016. The two protections are Fixed Protection 2016 and Individual Protection 2016. The way that they work is very simple, the Fixed Protection has been introduced in the past. We had quite a similar protection in 2014 and also in 2012. But for now, they’ve reduced it from £1.25 to £1m so the government is allowing people to apply for Fixed Protection 2016.You don’t have to have any limits into pensions – (how much you’ve got in the pension pot), so long as you’ve got a pension registered with a UK Pension Scheme you can apply for it, and it will give you a lifetime allowance up to £1.25m. However there are some caveats to it in that you need to stop making pension contributions as at 6th April 2016 and you will revoke this protection should you make any contributions in the future.
The Individual Protection works slightly differently. You need to have at least £1m in a pension fund as at 6th April 2016 and you will have a lifetime allowance up to the amount of the value of the pension as at 6th April 2016. But the good thing is that you can continue to pay into your pension pot and build a better pension pot if you like for the future.
As of recently, a few months back, the government has introduced an online application which has made it a lot easier for people. Before, I think when they introduced the protections in the last budget, people could apply on paper, which was a bit of hassle for people to do that and then you would have to wait for HMRC until they come back and write to you. Since then it’s become a lot easier – you go to the HMRC website. You need to set up an online account with them and then once you’ve got that you can easily follow the links to apply for each of the protections.
The difference between the two really depends on the special circumstances – how people’s circumstances are at the time, hence the COURTIERS Advisers will be able to help you. It’s always very beneficial if you do have a pension pot at a certain amount it’s really, really useful that you talk to your adviser to make sure and find out which one is the right one – there is no right or wrong answer. We would encourage people to apply for both of them in most circumstances and if one of them gets revoked you can always fall back on the other one. Rather than that I think your COURTIERS Adviser would be the best bet to try and speak to.
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