HMRC has now confirmed how the new transitional protection will apply when the lifetime allowance reduces to £1m from 6 April 2016 – we call it Lifetime Allowance 2016.
Fixed Protection 2016 allows pension savers offers the opportunity to retain a lifetime allowance of £1.25m in return for no more benefits building up in their pensions from 6 April 2016.
Individual Protection 2016 is available to those without primary protection and with pensions valued at £1m or above on 5 April 2016. This provides a personalised lifetime allowance based on this value, capped at £1.25m and allows benefit accrual to continue.
For Lifetime Allowance 2016 there is to be no application deadline currently, as I write this blog. However, individuals must apply for protection before taking benefits to keep Lifetime Allowance 2016 otherwise the standard lifetime allowance will apply.
How can I value my pension against the Lifetime Allowance 2016 ?
Defined contribution schemes have a fund value which you simply compare to the Lifetime Allowance 2016 limit. For final salary schemes it is a little more difficult to calculate as the accrued benefits that count towards the Lifetime Allowance 2016 are not the same as the transfer value.
The calculation is 20 times pension at the date of normal retirement, which you will have to obtain from the scheme provider. The provider usually gives members a statement to show how much of the Lifetime Allowance has been used.
An example
If your pension at retirement is £10,000 a year and you have an AVC balance of £25,000 (additional savings in a fund ) , the value of your pension is worked out as follows:
20 x £10,000 a year + £25,000 = £225,000
This can be compared against the available Lifetime Allowance . Of course, this example does not include any other pensions that you may have and all of them need to be added together when you apply for Lifetime Allowance 2016 .
If you think you may be affected by the Lifetime Allowance 2016, contact us and we will help you consider your options.
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