Pension Changes – Urgent Action Required Before 5 April 2012

Reduction to Lifetime Allowance

On 6 April 2012 the Pensions Lifetime Allowance will reduce to £1.5m from the current level of £1.8m. If you expect the total value of your pension savings might be more than £1.5 million when you come to take your benefits on or after 6 April 2012, you can then use Fixed Protection to help reduce or mitigate the Lifetime Allowance Charge. In order to claim this protection an election must be submitted to HM Revenue & Customs (“HMRC”).

Fixed protection is made by means of a formal election – it must be submitted to HMRC before 5 April 2012. HMRC have a standard form that should be used to make this election. The taxpayer has until 5 April 2012 to sign and submit this form to HMRC.

In order to apply for fixed protection the following conditions must be satisfied:

  • You must be a member of a “Registered Pension Scheme” such as a Small Administered Scheme (SSAS) or a Self-Invested Pension Scheme (SIPP); and
  • You must not not have either Primary Protection or Enhanced Protection.

Fixed Protection will allow you to ‘crystallise’ benefits worth up to £1.8 million without paying the Lifetime Allowance Charge, although the ability to pay further contributions and/or accrue future benefits is limited.

There are also potential implications in the reduction to the Lifetime Allowance even if you have already taken your benefits in full and ultimately secure your pension either by annuity purchase or via the ‘Scheme Pension’ route before your seventy-fifth birthday and after a period of ‘Income Drawdown’.  Equally, the overall position will still be tested on your seventy-fifth birthday if you have not, by that time, gone down the annuity purchase or ‘Scheme Pension’ route.

Action required if this is relevant to you:

If you think this will be relevant, more detail can be found in our Question and Answer factsheet.  If after reading this you believe the rules may affect you we recommend that you take urgent professional advice.

Note that the HMRC form must be completed and submitted to HMRC by 5 April 2012 for the election to be valid.




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