13 September 2011
In the Financial Update December 2010, we noted that from 6 April 2012 the Government intended to reduce the Pension Lifetime Allowance from £1.8 million to £1.5 million. If your pension fund has a value in excess of your lifetime allowance when you retire you will be subject to a Recovery Charge. This will be equivalent to 55% of the value of your pension in excess of your lifetime allowance.
If you expect your pension rights to have a value of more than £1.5 million when you retire, then you can apply for fixed protection. This will mean that you will have a protected lifetime allowance of £1.8 million. It will ensure that when you draw your pension, you will only be subject to a recovery charge on any funding in excess of £1.8 million rather than £1.5 million. This could save you as much as £165,000 (that is 55% of £300,000).
If you apply for fixed protection however you will need to stop the accrual of pension benefits after 5 April 2012. If you make any contributions or have relevant pension accrual after that date, you will lose your fixed protection.
To register fixed protection you will need to complete an application form and return it to HMRC no later than 5 April 2012. If you miss that deadline, fixed protection will not be available.
This is a complex issue and there are a number of factors you will need to consider before applying. If you would like to discuss these or any other matters concerning your pension planning then please contact UHY Financial Planning who will be pleased to help.
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