Pensions – Lifetime Allowances – Reductions and Protection

Pensions planning for higher earners is likely to become extremely topical in the balance of 2013 and early 2014.  

 

In previous Chapters Financial Blogs, we have referred to the forthcoming reduction in the Pension Annual Allowance from £50,000 to £40,000 from tax year 2014/2015. Another important allowance in respect of pensions is the Lifetime Allowance (LTA) which is the total deemed benefit amount held by an individual in all pension arrangements above which tax charges would apply.

 

I have looked at a few of the points you might want to consider below.

 

Lifetime Allowance (LTA) – Limits

 

The Lifetime Allowance was introduced on 06 April 2006 through legislation. The Lifetime Allowance (LTA) is currently £1.5M (tax year 2013/2014) and is due to reduce to £1.25M at the beginning of the new tax year, from 6 April 2014. This limit has already dropped from £1.80M (tax year 2011/2012) and the apparent trend may continue as the Treasury tries to garner more taxable funds. There is no guarantee this is the case and only time will tell.

 

Tax on Excess above LTA

 

If individuals’ total benefits accrued are greater than the Lifetime Allowance (without suitable protection), then a punitive tax charge would apply on the excess benefits of 55%, if taken as a lump sum, or 25% if taken as taxable pension income. Therefore, it could be more beneficial to remain within the Lifetime Allowance limit and divert any disposable income to other tax-efficient wrappers / products.

 

HMRC Consultation

 

It should be noted that HMRC have launched a consultation paper (June 2013) on possible smaller changes to the application of the LTA and this can be found here:

 

https://www.gov.uk/government/consultations/pensions-tax-relief-individual-protection-from-the-lifetime-allowance-charge

 

Please note that this is a consultation and we will endeavour to keep our readers posted on any agreed changes.

 

Chapters Financial is not responsible for the content of external website information.

 

Protection of Benefits

 

The government is allowing individuals to protect deemed pension benefits which have accrued greater than £1.25M prior to 06 April 2014. Confirmation and the documentation to achieve this should be available from autumn 2013.

 

This protection will be known as Fixed Protection 2014 (or FP14) and Individual Protection 2014 (or IP14). Each protection offers a different type of pension protection to the individuals’ benefits and are applied for at different times.

 

·         FP14 must be applied for prior to 06 April 2014.

 

·         IP14 can be applied for in a 3 year window from 06 April 2014.

 

It should be noted that IP14 is still in the consultation phase and has not been passed as legislation.

 

Defined Benefit Schemes

 

It is worth noting that Defined Benefit schemes (such as a Final Salary scheme) are valued, against the Lifetime Allowance, using a factor of 20, plus lump sum where applicable.

 

As an example, any pension income benefit accrued over approximately £62,500 pa (with no tax free cash) could breach the new reduced £1.25M Lifetime Allowance (2014/2015).

 

You should seek individual advice on this topic if it affects you.

 

Professional Advice

 

Whenever changes to pension legislation are due to come into force then considered financial planning should be sought from professional independent financial advisers.

 

If you would like to know more about this pension planning, your tax allowances and the different types of protection available then please contact the team at Chapters Financial Limited on 01483 578800.

 

No individual advice has been provided in the text of this blog. You should seek independent financial advice (IFA) in your own individual circumstances and needs.

Simon Hewitt BSc (Hons) DipPFS

Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

Business Risks Protection

The team at Chapters Financial Limited is proud to offer service and advice to the directors and staff of Small to Medium Enterprises (SME's) across Surrey, Kent and the south east region.

In specialising in business planning, including pension, protection and investment planning, Chapters Financial Limited receives requests from companies and enquirers for information on suitable cover for professional risks. This subject is a specialist area requiring bespoke solutions to the company’s needs and individual objectives.

To offer help in this area, we feel greater value can be secured by referring these enquirers to the specialist team at MacQueen International, based in Guildford, who serve business owners and managers in providing protection for business risks. They offer independent advice, like us, and have the following pedigree:

• Member of the British Insurance Brokers Association;
• Authorised and Regulated by the Financial Conduct Authority
• Based in Guildford, Surrey, UK
  
• Offering a wide range of commercial insurances including a Specialists Division in the provision and management of Professional Indemnity insurance
  Established in 1986
• Brokers to the Chartered Institute of Logistics and Transport in the UK
  
• Martin Macqueen, Director at MacQueen International Insurance Brokers Limited notes:

Through our two operating Divisions, Corporate and Professional, we offer a personal service from the initial meeting to assess the risks associated with your business through to extensive marketing in the London companies and Lloyd’s market to secure best terms tailored to your specific needs, to hands on claims management, including negotiation with underwriter’s appointed loss adjuster, solicitor or other claims handler to ensure that the policy you purchased works for you, to protect your assets and your company’s reputation.

Like Chapters Financial Limited, we place a high value on the quality of service provided to our clients and we are recognised within the professional market as a competitive and resourceful broker in the management of our clients’ insurance programmes.

We are delighted to be associated with Chapters Financial Limited.

When discussing the products available, Martin has provided a few examples for information below:

Typically Directors and Officers policies are divided into two parts:

• Directors & Officers Liability Coverage: The insurance company will pay the loss of individual Directors and Officers when the company cannot indemnify the individuals
• Corporate Reimbursement Coverage: The insurance company will pay the loss of the company when it has provided indemnity to the individual Directors and / or Managers

However coverage can be extended to include:

• Full Employment Practices Liability – covers the company (as opposed to the individual Directors/Managers) legal liability arising from a wrongful employment act including unfair dismissal, race, sex, age and disability discrimination.
• Corporate Liability (entity coverage) includes coverage for the company (as opposed to the Individual Directors / Managers) where an action is brought in the name of the company as well as its Directors and Officers.

The cost of coverage is not expensive for the essential protection it provides the individual Director and Officer of the Company and should form part of your essential insurance portfolio.

For information, MacQueen International Insurance Brokers Limited is the appointed broker to members of the Chartered Institute of Logistics and Transport in the UK for the provision of professional indemnity and directors and officers insurance.

No individual advice has been provided during the course of this blog. If you require bespoke advice on your pension, protection and investment planning, then please speak to the team at Chapters Financial Limited on 01483 578800.

For advice on professional risks protection, please contact Martin MacQueen on 01483 306771 or martin@macqueeninternational.co.uk

Keith Churchouse FPFS
Director,
ISO22222 Personal Financial Planner

Chapters Financial Limited Chapters Financial Limited is not responsible for the advice or service provided by MacQueen International Insurance Brokers Limited.

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

MacQueen International Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority, number 310867.