We have seen the lifetime allowance rise as high as £1.8m since A-Day. Now we are down to just £1m. Each time it has dropped, we have seen another protection announced with various deadlines attached.
It has been almost three years since we saw the lifetime allowance reduce from £1.5m to £1.25m but there is still time to protect those that are eligible. At least for the next few weeks anyway.
Unlike fixed protection, there is no requirement to cease contributions, meaning those who were eligible remain so today, even if they are not aware of it.
That said, HM Revenue & Customs is unlikely to be sympathetic to those that miss the looming deadline to apply.
In order to be eligible, an individual would need to have benefits valued in excess of £1.25m at 5 April, which would mean they are able to protect a personalised lifetime allowance up to £1.5m.
Any benefits in excess of this will not be protected but an application can and should still be made, as it could avoid a tax charge of up to £137,500.
I cannot count the amount of times I have heard people say protection is only for rich people. In fact, it is surprising how quickly benefits can add up, especially those with benefits in payment or those with deferred final salary benefits. The important thing to remember is it is not just fund values you need to look at to establish if an individual has benefits high enough to apply.
You should be particularly mindful of those who have the following:
- Deferred benefits in a final salary scheme – valued at 20 times the pension at 5 April 2014
- Pre A-Day benefits in payment: 25 times the annuity in payment at 5 April 2014; 25 times max GAD at 5 April 2014 if in capped drawdown; and deemed
Benefit Crystallisation Event revalued to 2014 if further crystallisations have occurred since A-Day
- Benefits in payment – BCE amount revalued to 2014
- Pension commencement lump sum payments – BCE amount revalued to 2014.
Without up-to-date figures it is difficult to tell if someone has the required benefits to apply, as it is all dependent on 5 April 2014 and every pension they have, whether it is in payment or not.
Where someone is partially crystallised, these will need to be added to other benefits to establish the value.
Some of these details can take time to get from the scheme administrator, so should there be any chance the individual could be eligible the scheme
should be contacted as a matter of urgency to obtain the relevant details.
We had hoped the application deadline would be extended or dropped, in light of lack of deadline on the 2016 protections. However, this has not been the case and time is now running out.
No one wants to pay more tax than they need to, so even a small lifetime allowance enhancement is worth having.
Claire Trott is head of pensions strategy at Technical Connection