Spring 2014 Newsletter
Pension changes ahead - Are you likely to be affected?
The Government had previously announced a couple of important changes to the pension regime which will take effect from 6 April 2014. Here is a quick reminder of the changes and how they could impact on you.
Firstly, there is an annual limit for giving tax relief on pension contributions. This is known as the annual allowance and is currently set at £50,000. Contributions paid in excess of this limit can, in some instances, give rise to an income tax charge on the individual member of the pension scheme. For the tax year 2014/15 the annual allowance is to be reduced by 20% to £40,000.
Secondly, there is an overall limit on the total amount of tax relieved pension savings that an individual can accumulate over their lifetime. This is known as the lifetime allowance and is currently set at £1.5 million. If an individual has savings in excess of this allowance the excess can be charged at 55% if taken as a lump sum or 25% if taken as income. This charge will generally crystalize when the individual starts to take their benefits from their pension scheme. For the tax year 2014/15 the lifetime allowance will be reduced by approximately 17% to £1.25 million.
However, for those who believe they may be affected by this change, the Government has announced measures to protect pension savings which have already reached certain levels. The first of these which is already available is the 'fixed protection' (FP2014) regime and this entitles an individual to a lifetime allowance of £1.5 million. Applications for this protection need to be received by HMRC before 6 April 2014 so you may need to act quickly if this is likely to affect you. One key point to be aware of under this arrangement is that any new pensions savings made by or on behalf of the individual from 6 April 2014 are likely to lead to the loss of this fixed protection. Ordinarily, this will mean that the individual has to opt out of active membership of all registered pension schemes of which they are members.
Further, the Government announced that they would also be introducing an individual protection (IP14) regime, in addition to FP2014. This will provide an individual with a personalised lifetime allowance where they have pension savings of between £1.25 million and £1.5 million as at 5 April 2014. In contrast with FP2014 further pension savings can be made, although when benefits are taken any pension savings above the individual's personal lifetime allowance, as at 5 April 2014, will be subject to either the 55% or 25% charge as mentioned above.
So, to conclude, if you believe these changes could impact on you, and/or you require any further advice please contact us as soon as possible.