From April this year, the maximum amount that you are allowed to hold in your pension and the annual contribution allowance is reducing significantly.
After 6 April, the maximum lifetime pension allowance will be £1.25 million (reducing from £1.5 million) and the maximum annual pension contribution allowance will be £40,000 (reducing from £50,000).
If your pension benefits, or your contributions, exceed these maximums now or in the future, then significant tax charges could be suffered.
Certain types of protection can be applied for to protect your benefits from suffering an excess charge and these should be assessed prior to April. There are two new forms of protection being introduced from April 2014; fixed protection 2014 and individual protection 2014 – these can be used to protect individuals who have built up pension pots of more than £1.25m but no more than £1.5 million. Applications for fixed protection 2014 have been available since August 2013.
The rules are complex but with fixed protection 2014 you can fix your lifetime allowance at £1.5 million, meaning that you can take pension savings worth up to £1.5 million without paying the lifetime allowance charge.
To get fixed protection 2014 you must apply before 6 April 2014. However, you can not have fixed protection 2014 if you already have primary, enhanced or fixed protection. The individual protection 2014 will only be available for those with pension savings in excess of £1.25 million on 5 April 2014.
These pension changes could affect every person making large contributions into their pension but particular care should be taken if you are:
- over 40 years of age,
- earning around £120,000 pa, or
- holding pension benefits outside of your main scheme.
If you think you could be hit by the changes, contact us without delay so we can review your benefits and apply for the appropriate protection on your behalf if necessary.
If your benefits are not protected and you breach the maximum allowances then you may suffer up to 45% tax charge on excess contributions and/or a 55% tax charge on the excess over the lifetime allowance.
For more information how to protecting your pension, contact JW Hinks Lifestyle services team now.