Lifetime Allowance and Fixed Protection Update

Published on Friday, 28 October 2011

Time is running out to make an informed decision on your Lifetime allowance and the new Fixed Protection regime

Anyone who opts for Fixed Protection will retain a lifetime allowance of £1,800,000 until such time as the new Lifetime Allowance (£1,500,000) escalates to a figure greater than £1,800,000.   In exchange for no taxation of your equivalent pension fund below £1,800,000, all contributions and accrual (except for an allowance for CPI) must cease on the 5th April 2012.

The Bullet points to consider with Fixed Protection are:

  • Tax over the Lifetime Allowance is 55% for lump sums
  • Tax over the Lifetime Allowance is 25% for pension income
  • For Final Salary Pensions (Such as the NHS and USS Pension) Your Lifetime Allowance = 20 x Your Pension + any tax free cash
  • For Pensions already in payment the multiple is 25 x the pension (with exceptions)
  • Those in Pension Drawdown are re-assessed at age 75 so may have to pay tax then
  • You can maximise your contributions in 2012 by using different pension input periods
  • Avoid future problems with a family SIPP

For those in final salary pensions you need to consider

  1. Does Your Scheme Apply Abatement?
  2. What Conversion factors are used to pay the 25% tax on pensions?
  3. What is the level of index linking? (i.e. is it above CPI)
  4. Can You Take Early Benefits?

For those who don't take fixed protection but have to pay the Lifetime Allowance tax:

  • Consider taking money purchase benefits this tax year
  • choose the order of your benefits
  • Consider SIPPs and SSAS scheme

For those in Pension Drawdown   consider:

  1. Buying a Scheme Pension
  2. Investing into a QROPS before April
  3. Ensuring you draw down sufficient to reduce your pot below the Lifetime Allowance by the age of 75

Swallow Finance Planning have a great deal of experience in this area and have already worked with members of the NHS, USS and LGPS as well as other clients with money purchase plans.  We have a 7 page booklet available for those seeking more information (including a worked final salary scheme example).  Please contact us for further information.

 

  • Independent Financial Advisor
  • Chartered Financial Planners
  • Swallow Financial Planning LLP is authorised and regulated by the Financial Services Authority

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