From 6 April 2012 the lifetime allowance for pension funds will fall from £1.8m to £1.5m. Higher earners have until 5 April 2012 to register for fixed protection of £1.8m. If the value of pension benefits exceeds the lifetime allowance, a tax charge will be levied at 55% of the excess.
Action points
Look at benefit projections to determine whether you might be affected and then consider ways to deal with it.
- Election for fixed protection of £1.8m must be with HMRC by 5 April 2012. No further contributions or membership of a pension scheme will be allowed. From October 2012, a requirement for employers to enrol employees into a pension automatically will be gradually introduced. You must opt out of the pension within one month of enrolment or fixed protection will be lost.
- If you are aged 55 or over, consider drawing benefits before 6 April 2012 while the current £1.8m allowance exists. If you take benefits through drawdown rather than buying an annuity, consider electing for fixed protection as well, because a further lifetime allowance check will take place at age 75.
- Consider making extra contributions before 5 April 2012 to maximise the fund and then register for fixed protection or take benefits. You can potentially get tax relief on contributions of up to £50,000 per tax year and carry forward unused contribution allowances from the previous three years.
- If you are going to stop accruing benefits within pensions earlier than originally planned, you will need to consider alternative strategies to build up your retirement funds.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
