HMRC Pensions Individual Protection application/ Now available

As an update from the last tax year (2013/2014), we note that the HMRC website has been updated today and now includes full details of the new Individual Protection for pensions, along with a facility to apply for this online.

This application can be found here: http://www.hmrc.gov.uk/pensionschemes/ip14online.htm

Chapters Financial is not responsible for the content of external webpages.
As a reminder, the HMRC website confirms:

Individual Protection 2014

The government announced that individual protection 2014 will be available when the lifetime allowance is reduced to £1.25 million for 2014-15. Individual protection 2014 will operate from 6 April 2014, for those with pension savings valued at over £1.25 million on 5 April 2014.

Individual protection 2014 will give a protected lifetime allowance equal to the value of your pension rights on 5 April 2014 - up to an overall maximum of £1.5 million. You will not lose individual protection 2014 by making further savings in to your pension scheme but any pension savings in excess of your protected lifetime allowance will be subject to a lifetime allowance charge.

You'll be able to apply for individual protection 2014 from 18 August 2014. Your application must be received by HMRC no later than 5 April 2017.

You can hold both fixed protection 2014 and individual protection 2014.You can also hold individual protection while holding either enhanced protection or fixed protection but you can't apply for individual protection if you already hold primary protection.

Summary

Pensions and HMRC protection can be a complicated subject, dependent on your individual circumstances. If you would like to consider the points noted above further then please do not hesitate to contact the team at Chapters Financial, who will be able to help you further with your pension enquiries. No individual advice is provided during the course of this blog. If you would like to receive further information regarding your own individual situation and circumstances, please contact the Chapters Financial team in either Guildford or Woking.

Keith Churchouse BA Hons FPFS
Director, Chapters Financial Limited
Chartered Financial Planner
Certified Financial Planner
ISO22222 Personal Financial Planner


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

More pension changes and updates/HMRC

More pension changes and updates / HMRC

 

In the mid 1990's the then Inland Revenue (now HMRC) introduced a new term that they found unacceptable. This was called 'Cascading'. Cascading was the process of drawing pension benefits and tax free cash and re-investing the tax free cash into another pension to claim further pension tax relief. In effect, using tax free money to claim tax relief through recycling. The authorities made it very clear that they would be looking out for such manoeuvres and now, when claiming benefits with most providers, there is a declaration to be signed to confirm that you will not undertake such related transactions.

 

1. Reduction in Pension Annual Allowance for those drawing tax free cash AND taxable income

Taking this a stage further, the Government has added to this by restricting the amount of Annual Allowance (the maximum gross amount you can put in a pension in a tax year from all sources and receive income tax relief) from £40,000 gross to £10,000 gross for those that draw pension tax free cash AND taxable income after age 55. Full details of this planned change (from April 2015) can be found here:

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/332714/pensions_response_online.pdf

Those drawing only tax free cash should not be affected.

This change as a headline does not look significant, but it will catch out some pension investors who are trying to be flexible with their pension benefits whilst still continuing to work.

2. Individual Protection (for those with pension benefits over £1.25M at 05 April 2014)

HMRC has confirmed that applications for Individual Protection 2014 can be made online from 18 August 2014. An HMRC tool for checking your pension Lifetime Allowance is available here: http://www.hmrc.gov.uk/tools/lifetimeallowance/index.htm

 Full details of Individual Protection for pensions can be found here:

 http://www.hmrc.gov.uk/pensionschemes/pension-savings-la.htm#6

 Those who have Fixed Protection from HMRC can also hold Individual Protection (up to a benefit of £1.5M maximum)at the same time in certain circumstances and individual advice should be sought accordingly.

3. State Pension uplift in deferment

The DWP has announced in a Ministerial Statement that the current uplift of 10.4% pa (1% for every 5 weeks deferred) for those not claiming the State Pension at their allowed date will reduce from the tax year 2016/2017 by almost half to 5.8%.

Full details can be viewed here: http://www.parliament.uk/documents/commons-vote-office/July-2014/22%20July%202014/29-DWP-PensionIncrements.pdf

This change will be disappointing for some, but is not a surprise, due to the demographic pressures being placed on the State Pension system. There are other opportunities to top up the State Pension and we will detail this further in an additional blog.

          Chapters Financial is not responsible for the content of external webpages

 

Summary

It is very clear that the authorities involved in pensions legislation are busy people at the moment. These updates have been provided to keep our clients and enquirers up to date with the latest changes planned and announced for pension and retirement planning. Some investors choose to use other alternative vehicles (usually in combination with pension benefits) for their retirement, such as ISAs, or New ISAs (NISAs) as they are now called. The contribution limit for these has increased to £15,000 from the beginning of July 2014 (from £11,880) and this tax efficient allowance is usually worthwhile using where possible.

No individual advice has been provided during the course of this blog. If you would like financial advice on the allocation of your funds or your investment strategy, then please contact the Chapters Financial team in Woking (01483 330800) or Guildford (01483 578800).

Keith Churchouse BA Hons FPFS
Director, Chapters Financial Limited
Chartered Financial Planner
Certified Financial Planner
ISO22222 Personal Financial Planner

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

 

Pensions Lifetime Allowance/ Don’t Delay

Many clients have enquired recently about planned HMRC changes to pension allowances at the beginning of the new tax year, starting 06 April 2014. We have detailed the points of these significant changes in our recent Newsletters and because they are so topical, have confirmed the outline of these again in this Blog. 

 

I have detailed below some generic notes on the subject of HMRC’s change to the pensions Lifetime Allowance due to occur at the end of this tax year, 05th April 2014. 

 

As you may know, the Lifetime Allowance (LTA) reduces from £1.5M to £1.25M on 06/04/14. Excess pension/benefits over the LTA is taxed at 55% if taken as a lump sum or 25% (plus normal income tax) if taken as income. Hence if you do have an excess – protection will only reduce the size of this excess.

 

Anyone effected by these limits should consider the HMRC changes in legislation carefully to see if you wish to continue to accrue pension benefits into the future (possibly accepting the future tax charges on the amounts you accumulate into the future) or leave the scheme (possibly losing employer contributions if they are being made and possibly Death-in-Service benefits). 

 

To provide some protection from this situation, HMRC currently offer: 

• Fixed Protection (before 05 April 2014)
• Individual Protection (for those who have accumulated benefits in excess of £1.25M on 05/04/2014) in the new tax year (2014/2015). 

I have detailed the headlines of both below.  

1. Fixed Protection 2014/ Important 

• Must be applied for before 5th April 2014 ( This can be achieved online at the HMRC website)
• Maintains your LTA at 1.5m
• Will be lost if accrue any pension after 6th April 2014 – for example continued accrual in a final salary pension scheme or making any future pension contributions (including being Auto-Enrolled unless you opt out within 1 month)
• You must inform HMRC if you accrue benefits and hence give up your protection, within 90 days of knowing that you continue to accumulate benefits. The fine is £300 as an initial charge and £60 per day afterwards if HMRC are not informed.   

If you are in any doubt that this Fixed Protection may be advantageous then we would normally suggest that you apply for it now directly to HMRC.

 

However, if you then decide to stay in your pension scheme/continue to accumulate benefits you must notify HMRC in writing within 90 days or face a fine (noted above).  

 

For Final Salary Pension Schemes:  

 

The LTA accrual rate is 20X pension accrual + Cash

 

2. Individual Protection 2014/ From the new tax year 

• Only available if you have benefits at above £1.25M at 05/04/2014
• Still only HMRC proposals and cannot be applied for before 6th April 2014 (needs to be achieved before April 2017). Forms likely to be available by Mid/Late summer.
• Maintains your LTA at the value of your pension at 5th April 2014 up to a maximum of £1.5M.
• You can continue to accrue pension benefits after 6th April 2014 without losing this protection.
• Benefits above the Individual Fixed Protection amount you secure will still be charged at an equivalent tax charge of 55% when paid.

3. Annual Allowance Limit Reduction 

In addition to these changes, you will be aware that the Annual Allowance (AA/ the maximum contribution/benefit accrual that is allowed to be made into a pension for you from all sources in a year) is falling from £50,000 Gross in this tax year to £40,000 from the new tax year.

Any amount paid into a pension for you in excess of the new limit of £40,000 gross in the new tax year will be charged to tax at your highest marginal income tax rate.

For Final Salary Pension Schemes:

The AA accrual rate is 16X pension accrual (+ cash if your scheme gives you a separate lump sum in addition to your pension)

4. Summary

If you would like guidance and advice on these pension legislation changes, then please contact the team at Chapters Financial at either our Guildford (01483 578800) or Woking (01483 330800) offices.

 

No individual pension/ financial advice is provided during the course of this blog.

 

Keith Churchouse FPFS

Director

Chartered Financial Planner

ISO 22222 Personal Financial Planner

 

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

Pension Lifetime Allowance /Fixed Protection and Individual Protection / HMRC Update

New guidance (and application forms) has become available from HMRC, on the morning of 12 August 2013, both for Fixed Protection from 2014 (must be applied for before 05 April 2014, if required) and for the plans for Individual Protection 2014, which can only be applied for after the start of the new tax year 2014/2015.

A link to this is available here: http://www.hmrc.gov.uk/pensionschemes/pension-savings-la.htm#5

The Member Guidance here is also useful: http://www.hmrc.gov.uk/pensionschemes/fp2014guidance.pdf

I wanted to get this information to you promptly for consideration and action, if required or needed.

In addition, the new HMRC entry on their website notes the expected (to be confirmed) outcomes of its plans for Individual Protection 2014 as follows:

As well as fixed protection 2014, the Government has announced that individual protection 2014 will be available when the lifetime allowance is reduced to £1.25 million for 2014-15. The details of individual protection 2014 will be confirmed later but it is expected that:

• it will give you a lifetime allowance equal to the value of your pension rights on 5 April 2014 - up to an overall maximum of £1.5 million.
• you will not lose individual protection 2014 by making further savings in to your pension scheme
• any pension savings in excess of your lifetime allowance will be subject to a lifetime allowance charge

You'll be able to apply for this from 6 April 2014.

You can hold both fixed protection 2014 and individual protection 2014 but you can't apply for them at the same time.

I hope the above information and the links are of interest to those that are affected by these issues.

If you would like to know more about this pension planning and your tax allowances/limits 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 bespoke financial advice in your own circumstances.

Keith G. Churchouse FPFS
ISO22222 Certified Financial Planner
Director and Financial Planner

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

Chapters Financial is not responsible for the content of external webpages.

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.