Fixed Protection – Application Form now available from HMRC
From 6 April 2012 the lifetime allowance will reduce from its current level of £1.8 million to £1.5 million.
The Government has recognised that members of pension schemes may have arranged their pension planning to achieve a fund of £1.8 million by the time they wish to take benefits.
For these members there is the opportunity to claim fixed protection, which will allow them to build up a fund of up to £1.8 million without suffering a lifetime allowance charge. Members cannot claim fixed protection if they have claimed and wish to retain enhanced protection or primary protection. The size of the current fund is not relevant when making the application, although when benefits are taken tax will be charged on the excess if the fund is over £1.8 million, but this new form of protection is lost if further contributions are made to a money purchase scheme, or further benefits are accrued in a defined benefit scheme.
The form that needs to be completed to claim fixed protection is now available. To be valid, applications for fixed protection have to be received by Her Majesty’s Revenue and Customs (HMRC) by 5 April 2012; there are no exceptions and late claims will not be accepted.
Fixed Protection application form
Notes for completion
There is only a short period of time for advisers to consider which of their clients may benefit from claiming fixed protection.
There are a number of different factors to be considered when deciding.
- Are members aware of the current value of their scheme? It may be possible that a fund, which currently has a relatively low value, will exceed £1.5 million when the member takes their retirement benefits.
- Advice needs to be taken regarding fund growth assumptions. If the member has a number of years to retirement and is currently making large contributions, they may wish to cease contributions and rely on fund growth to achieve a fund value up to the fixed protection amount. If growth does not match expectations, contributions can re-commence, although the fixed protection above £1.5 million is lost.
- Does the scheme hold any investments that may increase in value in excess of normal growth expectations? There could be higher than expected rental yields, land held as an asset of the scheme may have potential for development that may increase its value, or an investment in shares may have potential to increase considerably in value.
- Did the member claim enhanced protection and now realises that the scheme will not grow in value as anticipated? There is now the opportunity to make a contribution (perhaps using carry-forward) to bring the fund up to a level to achieve £1.8 million. Although enhanced protection will be lost, fixed protection can be claimed.
If you would like to know more about how these changes affect SSAS, SIPP or Family Pensions Trust (Family SIPPs) please contact us or use the enquiry box on the right hand side. If you think you are affected, we recommend that you seek advice from your financial adviser.
