«Guidance Note 10 December 2013 Updated on 22 August 2014 1 Contents Page Introduction 3 Chapter 1 Overview 4 Chapter 2 Applying for IP 2014 7 Chapter ...»
Pensions: Individual Protection 2014
10 December 2013
Updated on 22 August 2014
Chapter 1 Overview 4
Chapter 2 Applying for IP 2014 7
Chapter 3 Valuing savings 14
Chapter 4 Pension debits 32 Chapter 5 Taking benefits 36 Chapter 6 Additional information for scheme 41 administrators 2 Introduction As announced at Budget 2013, and following consultation, parliamentary scrutiny and Royal Assent, legislation was introduced in Finance Act 2014 to provide further transitional protection (‘individual protection 2014’) from the pensions lifetime allowance charge. This protection has been introduced because the standard lifetime allowance has reduced from £1.5 million to £1.25 million from 6 April 2014. Individuals who have pension savings of greater than £1.25 million on 5 April 2014 can apply for individual protection 2014, providing they don’t have existing primary protection. Individual protection 2014 will give individuals a protected lifetime allowance equal to the value of their pension savings on 5 April 2014, subject to an overall maximum of £1.5 million.
This document provides some questions and answers in connection with individual protection 2014 based on the legislation in Schedule 6 Finance Act 2014 and supporting regulations in Statutory Instruments 2014/18421 and 2014/18432.
If you have any further questions in connection with these changes please contact the HMRC Pension Schemes Services helpline on 0300 123 1079.
1 The Registered Pension Schemes and Relieved Non-UK Pension Schemes (Lifetime Allowance Transitional Protection)(Individual Protection 2014) Regulations 2014 [SI 2014/1842].
2 The Registered Pension Schemes (Provision of Information)(Amendment) Regulations 2014 [SI 2014/1843].
3 Chapter 1 - Overview
1.1 Lifetime Allowance and Protection Overview What is the lifetime allowance?
The lifetime allowance is the maximum amount of pension savings that you can build up over your lifetime that benefit from UK tax relief.
If when you crystallise your pension savings these are worth more than the lifetime allowance you'll pay a tax charge (the lifetime allowance charge) on the excess. There are eleven events, called benefit crystallisation events (BCEs), when your pension savings may crystallise. Most of these events occur when you take benefits from your pension scheme.
For more information about the eleven BCEs see RPSM11102020.
The level of the standard lifetime allowance has been reduced from £1.5 million to £1.25 million with effect from 6 April 2014 onwards.
For further information on the lifetime allowance rules see Understanding the lifetime allowance for pension schemes.
As a consequence of the reduction in the lifetime allowance from April 2014, there are two new forms of transitional protection available, fixed protection 2014 (‘FP 2014’) and individual protection 2014 (‘IP 2014’).
Fixed protection 2014 (FP 2014) FP 2014 is aimed at individuals who at 5 April 2014 had already built up savings of more than £1.25 million, or had planned to do so after that date in the expectation that the lifetime allowance would not reduce from the 2013-14 level.
FP 2014 will give you a protected lifetime allowance of £1.5 million. This means you can crystallise benefits worth up to £1.5 million without paying the lifetime allowance charge.
If you expect your pension savings to be more than £1.25 million (including taking into account past benefit crystallisation events) when you come to take your benefits on or after 6 April 2014, you can use FP 2014 to help reduce or eliminate the lifetime allowance charge. FP 2014 had to be applied for on or before 5 April 2014 - if you make an application after that date HMRC cannot accept it.
In return for this protection, the tax rules limit your ability to accrue future benefits. If you exceed these limits then you will lose your FP 2014. You can also lose FP 2014 in other circumstances. For further information on FP 2014 and how to apply see RPSM11106200.
The government has also introduced in Finance Act 2014 an additional form of protection IP 2014 - which offers individuals more flexibility than FP 2014 in how they protect their pension savings.
If you have pension savings on 5 April 2014 which have a value of more than £1.25 million, IP 2014 allows you to protect those savings (up to a value of £1.5 million), as long as you don’t have primary protection, see RPSM03100000.
IP 2014 will give you a protected lifetime allowance equal to the value of your pension savings on 5 April 2014 subject to an overall maximum of £1.5 million. Unlike FP 2014 there are no restrictions on future pension savings, although if they exceed your protected lifetime allowance the excess will be subject to the lifetime allowance charge.
IP 2014 is available even if your pension savings on 5 April 2014 have a value of more than £1.5 million. As the maximum protected lifetime allowance you can have with IP 2014 is £1.5 million, any savings in excess of this will not be protected and will be subject to the lifetime allowance charge when you crystallise your benefits. See RPSM11105000 for more guidance on the lifetime allowance charge.
The online application is available on the HMRC website. You have up to 5 April 2017 to submit your IP 2014 online application to HMRC.
1.2 IP 2014 basic overview Who can have IP 2014?
If you are a member of a registered pension scheme and/or a relieved member of a relieved
non-UK pension scheme you can have IP 2014 provided that:
on 5 April 2014, your pension rights in such schemes are valued at more than £1.25 million, and you do not have valid primary protection on 5 April 2014, and your application for IP 2014 is received by HMRC by 5 April 2017 at the latest.
What will be my protected lifetime allowance under IP 2014?
If you successfully apply for IP 2014, you will be given a protected lifetime allowance equal to the value of your pension savings on 5 April 2014 subject to a maximum of £1.5 million.
What is the maximum tax free lump sum I can have?
Normally, the maximum tax-free lump sum you can take from 6 April 2014 will be 25% of the uncrystallised value of your protected lifetime allowance, subject to what the rules of your pension scheme(s) allow. However, some individuals are entitled to tax-free lump sums greater than 25% of their savings where they had a right to the higher amount of lump sum on 5 April 2006 and this is protected under the transitional rules in Schedule 36
What are the restrictions on future savings?
There are no restrictions. But any pension savings above your protected lifetime allowance will be liable to the lifetime allowance charge.
What happens if my pension savings exceed my personalised lifetime allowance?
You will be subject to the lifetime allowance charge on the excess when you take your benefits.
What happens if the standard lifetime allowance goes above my personalised lifetime allowance?
If at some time in the future the level of the standard lifetime allowance is higher than the level of your personalised lifetime allowance, your IP 2014 protection will cease to apply and you will revert to the higher standard lifetime allowance.
How do I apply for IP 2014?
See Chapter 2 of this guidance.
Can I have both FP 2014 and IP 2014?
Yes – see Chapter 2 of this guidance.
Note – the legislation talks about “giving notice of an intention to rely on IP 2014” but for ease of understanding in this guidance the process for giving notice is referred to as making an application for IP 2014.
References to regulations in this Chapter are to the Registered Pension Schemes and Relieved Non-UK Pension Schemes (Lifetime Allowance Transitional Protection) (Individual Protection 2014 Notification) Regulations 2014 [SI 2014/1842].
Who can apply for IP 2014?
[Paragraph 1(1) Schedule 6 Finance Act 2014] You can apply for IP 2014 even if you already have enhanced protection, fixed protection, or fixed protection 2014.
But you cannot apply if you have primary protection, or both enhanced protection and (dormant) primary protection.
If you want to apply for IP 2014 you will need to meet certain conditions. The conditions
you have one or more “relevant arrangements” (see following question) on 5 April 2014, and your relevant amount on 5 April 2014 is more than £1.25 million, and you do not have primary protection (see RPSM03100050 and RPSM03102000).
If you are satisfied you meet these conditions you can apply to HMRC for IP 2014.
What is a relevant arrangement?
[Paragraph 1(4) Schedule 6 Finance Act 2014]
You have one or more relevant arrangements if on 5 April 2014:
you are a member of one or more registered pension schemes, and/or you are a “relieved member” (see RPSM13102530 for more detail) of a “relieved non-UK pension scheme” (see RPSM13102520 for more detail). Very broadly this means you have funds in an overseas pension scheme which have benefitted from UK tax relief in some way, but not including savings that were in a registered pension scheme that have been transferred to the non-UK scheme.
What is my relevant amount?
[Paragraph 1(5) of Schedule 6 to Finance Act 2014] Your relevant amount is the total value on 5 April 2014 of your pension rights in all your relevant arrangements (see previous question). An individual can have different types of
How do I apply for IP 2014?
[Regulation 4(2)(a)] To apply for IP 2014 you will need to complete the online application which is available on the HMRC website. The online application must be received by HMRC by 5 April 2017.
Anyone can complete the online application and submit it on your behalf.
I intend to apply for IP 2014. What would happen if I died before 6 April 2017 and before applying for IP 2014?
[Regulation 14] Your personal representatives will have the right to apply in your place.
What is the final deadline for applying for IP 2014?
[Paragraph 1 Schedule 6 Finance Act 2014] Your online application must be received by HMRC by 5 April 2017 at the latest.
Applications received after that date will not be accepted.
Can I make a late application after 5 April 2017?
[Paragraph 1 Schedule 6 Finance Act 2014] No. Your online application must be received by HMRC by 5 April 2017 at the latest.
There is no provision in the legislation allowing HMRC to accept late applications. You must therefore ensure that your application is made on time.
What if I make an application on time but I have missed something out?
Applications must be received by HMRC by 5 April 2017 at the latest.
If, when we receive it, the application contains any obvious mistakes or is incomplete we will send you a letter asking for confirmation of the correct or missing information.
What information do I need to give on the online application?
[Regulation 4(1)] Your application for IP 2014 must be made using the online application which is on the
HMRC website. To complete the application correctly you must give the following details:
confirmation that you don’t have primary protection (see RPSM03100050 and RPSM03102000), the value of your pension savings, broken down into Amounts A, B, C and D as appropriate, see Chapter 3 of this guidance,
Whoever completes the form must also complete the declaration on the form declaring that the information they have given is true and complete to the best of their knowledge and belief.
Will HMRC confirm receipt of my IP 2014 application?
You will receive an email confirmation of receipt of your application following your online submission.
Once we have accepted and processed your online application we will send you a certificate to state that you have IP 2014. HMRC is likely to start issuing certificates from October 2014.
If IP 2014 is dormant because you have one of enhanced protection, fixed protection or fixed protection 2014 we will write to you confirming that your IP 2014 application has been accepted. But as these protections are more favourable than IP 2014, your IP 2014 certificate won’t be issued unless and until your IP 2014 becomes active because you have lost the other form of protection and notified us of this, as you are required to do.
How will I know if my application for IP 2014 has been accepted?[Regulation 5]
If you do not have any existing protection, when we have received and processed your online application, if you are entitled to IP 2014, we will send you a certificate (with a unique reference number) stating that you have IP 2014 and the amount protected. You must keep this certificate safe as you will need to show it to your pension scheme(s) if you want to rely on IP 2014 when you come to take your benefits.
Where you have existing enhanced protection, fixed protection or fixed protection 2014, we will write and tell you that your IP 2014 application has been accepted. But your IP 2014 certificate won’t be issued unless and until your IP 2014 becomes active.
Why would HMRC reject my application?
HMRC may refuse to accept your application if:
it is not made on the online application, all the information required has not been provided, we receive your application after 5 April 2017.
If we refuse to accept your application and if we have not already explained why, you can require us to give you the reasons for our refusal. You may also appeal against the decision not to accept your application. You must tell HMRC that you want to appeal against that decision within 30 days of the day when we gave our decision to refuse to accept your application.
Where the appeal is considered by the tribunal, the tribunal will decide whether HMRC
was entitled to take the view that: