Finance Act 2013
This received Royal Assent on 17 July 2013 and includes the legislation to reduce the Lifetime Allowance (LTA) from £1.5 million to £1.25 million from 2014-15 as well as for Fixed Protection 2014 (FP2014), which is intended to protect savers who think they may be affected by the reduction in the LTA.
If someone successfully applies for FP2014 then their LTA will remain at £1.5m but they will not be allowed to make any further contributions, or have any contributions made on their behalf. If they do, they will lose their FP2014.
In addition to the Finance Act there are a number of new sets of regulations that are relevant to pension schemes. These are:
SI 2013/1740 – The Registered Pension Schemes and Relieved Non-UK Pension Schemes (Lifetime Allowance Transitional Protection) (Amendment) Regulations 2013 – which make a number of amendments to the existing fixed protection legislation
SI 2013/1741 – The Registered Pension Schemes and Relieved Non-UK Pension Schemes (Lifetime Allowance Transitional Protection) (Notification) Regulations 2013 – which set out how to apply for FP2014 – basically there will be a form!
SI 2013/1742 – The Registered Pension Schemes (Provision of Information) (Amendment) Regulations 2013 – which set out the information requirements associated with FP2014 as well as new information requirements in connection with the annual allowance and QROPS
SI 2013/1818 The Registered Pension Schemes (Authorised Payments) (Amendment) Regulations 2013 – which amend the existing authorised payment regulations as a consequence of the abolition of contracting out for defined contribution pension schemes from 6th April 2012.
Fixed Protection 2014
When the FP2014 notification regulations come into force on 12th August it will mean that individuals will be able to apply for FP2014 from that date.
The form to apply for FP2014 should therefore be on the HMRC website from 12th August. The form can be completed and submitted online or by printing the PDF off and posting the completed form to HMRC Pension Schemes Services.
Applications for FP2014 must be received by HMRC by 5 April 2014. HMRC have advised that they will not send out any FP2014 certificates before 1 November 2013.
The HMRC website states:
“Fixed protection 2014 will work in a similar way to the existing fixed protection regime introduced in April 2012. From 6 April 2014 the standard lifetime allowance will be reduced from £1.5 million to £1.25 million but with fixed protection 2014 you can fix your lifetime allowance at £1.5 million. This means you can take pension savings worth up to £1.5 million without paying the lifetime allowance charge. You’ll have to apply before 6 April 2014 to get fixed protection 2014.
You can’t have fixed protection 2014 if you already have primary, enhanced or fixed protection. You’ll lose fixed protection 2014 if you:
- have a contribution paid to any of your money purchase pension pots
- build up new benefits in a defined benefits or cash balance pension pot above a set amount
- join a new pension scheme – unless you’re only transferring pension savings from one of your existing schemes into the new scheme
- start saving in a new pension pot either under an existing pension scheme or a new pension scheme
If you’re unsure of the value of your pension savings and don’t know whether you need fixed protection 2014 contact your scheme administrator or financial adviser. You can also use the lifetime allowance checking tool (see the first link below) to help you decide whether to apply for fixed protection 2014 and also individual protection 2014.
Use the second link below to apply online for fixed protection 2014. This is the most secure route and offers the benefit of immediate confirmation of receipt. If you haven’t got a National Insurance number you will need to apply by post, using the paper form at the third link below.
http://www.hmrc.gov.uk/tools/lifetimeallowance/index.htm
http://www.hmrc.gov.uk/pensionschemes/fp14online.htm
http://search2.hmrc.gov.uk/kb5/hmrc/forms/view.page?record=eD4vCN4VDKQ&formId=7378
http://www.hmrc.gov.uk/pensionschemes/fp2014guidance.pdf “
Individual Protection 2014
As you may be aware, HMRC and The Treasury are currently consulting on Individual Protection 2014 (IP2014). The proposal is that someone with more than £1.25M total pension assets as at 5th April 2014 will be able to apply for IP2014 and then will have their own personal LTA. This will be set at whatever the value of their total pension assets was as at 5th April 2014. However, unlike FP2014, they will be allowed to make (have made on their behalf) contributions post 5th April 2014. This may be useful if, for example, some of their investments fall in value.
Anyone who currently has either Primary or Enhanced Protection will not be eligible for IP2014.
However, it will be possible for those who apply for FP2014 to also apply for IP2014.
For those with IP2014, their personalised LTA will never be increased unless the standard LTA increases from £1.25 million to a level greater than the individual’s personalised LTA. In these circumstances the individual’s personalised LTA would revert to the standard LTA.
The consultation document on IP2014 can be found at:
https://www.gov.uk/government/consultations/pensions-tax-relief-individual-protection-from-the-lifetime-allowance-charge
The consultation closes on 2nd September 2013.
Although it is proposed that individuals will be able to apply for both FP2014 and IP2014, because of the way the different protection regimes will work, HMRC have advised that it will not be possible to send in applications for both at the same time.
Applications for FP2014 must be received by HMRC by 5 April 2014, whereas applications for IP2014 cannot be submitted until after this date as a valuation of pension savings on this day will be required.
It is proposed that there will be a three year window to apply for IP2014.
The way forward
Action suggested:
1. Consult your client director at Cantab Asset Management
2. Review total pension assets
3. If appropriate, apply for the relevant Protection(s)
If no action is taken, the default is that the new LTA of £1.25m will apply from 6 April 2014.
HMRC website with pension updates
Risk warnings
This document has been prepared based on our understanding of current UK law and HM Revenue and Customs practice, both of which may be the subject of change in the future. The opinions expressed herein are those of Cantab Asset Management Ltd and should not be construed as investment advice. Cantab Asset Management Ltd is authorised and regulated by the Financial Conduct Authority. As with all equity-based and bond-based investments, the value and the income therefrom can fall as well as rise and you may not get back all the money that you invested. The value of overseas securities will be influenced by the exchange rate used to convert these to sterling. Investments in stocks and shares should therefore be viewed as a medium to long-term investment. Past performance is not a guide to the future. It is important to note that in selecting ESG investments, a screening out process has taken place which eliminates many investments potentially providing good financial returns. By reducing the universe of possible investments, the investment performance of ESG portfolios might be less than that potentially produced by selecting from the larger unscreened universe.
