HMRC has published details of a new “individual” protection regime which will allow people with pension savings worth more than the new £1.25m lifetime allowance to protect the value of their pot and continue contributing to a pension scheme, subject to the relevant charge.
Chancellor George Osborne confirmed the Government will cut the lifetime allowance from £1.5m to £1.25m from April 2014 in his Autumn Statement in December. A charge of up to 55 per cent applies on assets above the limit.
At the time, the Government said it planned to introduce two new protection regimes – fixed protection and individual protection – to ease the transition to the new savings limit.
The proposed fixed protection rules will allow individuals to lock-in to a lifetime allowance of £1.5m, provided they do not make any further pension contributions. Investors will need to apply for the new protection before 6 April 2014.
Under the individual protection regime, savers will be able to apply for a personalised lifetime allowance, up to a maximum of £1.5m, based on the value of their pension pot at 5 April 2014. Investors will have three years to apply for individual protection from 6 April 2014.
Anyone who takes out individual protection to protect the value of their pot will still be able to contribute to their pension, although these extra contributions will be subject to lifetime allowance charges.
HMRC says this option is likely to attract people who receive large employer pension contributions which cannot be converted into other benefits, such as higher pay.
HMRC says: “The recently announced reduction in the lifetime allowance to £1.25m is expected to impact a wider population than the previous reduction to £1.5m.
“This population may not have previously required regular financial advice to make an informed decision about the suitability of fixed protection.
“Offering the option of individual protection as well as fixed protection would therefore provide greater flexibility for this group to choose the most appropriate protection regime for their personal circumstances and allow them to remain an active member of their pension scheme if they wish.”