The pension lifetime allowance sets a limit on the amount of tax-relieved pension savings an individual can build up over their lifetime. On 6 April 2016, the lifetime allowance was reduced from £1.25 million to £1 million. As was the case when the allowance was last reduced (from £1.5 million to £1.25 million in April 2014), two forms of transitional protection are available.
Individuals can apply for:
Individual protection – if total benefits are worth more than £1 million on 5 April 2016 an individual can protect that value as their own personal lifetime allowance (subject to a maximum of £1.25 million), and can continue to accrue benefits; and/or
Fixed protection – this allows individuals to retain a £1.25 million lifetime allowance, but it is immediately lost if there is new benefit accrual in a defined benefit scheme, or a contribution is paid to a defined contribution scheme after 5 April 2016.
In both cases, the individual’s protected lifetime allowance will not increase in the future. However, the Government has announced that the standard lifetime allowance will be indexed in line with the Consumer Price Index (CPI) from April 2018 onwards. If in the future this rises above an individual’s protected lifetime allowance, the protection will fall away and the individual will revert back to the standard lifetime allowance.
Applications must be made online, but the online facility will not be up and running until July 2016. There is no deadline for applications, though individuals must have protection in place before taking benefits. Those who want to take benefits before July 2016 can make an interim application in writing to HMRC. In their latest Newsletter, HMRC include templates to use when making the application. Individuals will get a temporary reference number valid until August 2016, but they must still make a formal application using the online process when it is available.
There will also be an online service for scheme administrators to check the protection status of their scheme members. HMRC will provide more information on this in due course.
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