Dealing principally with those at or very close to retirement, the 6th April 2012 deadline represents a last opportunity for some of our clients who are fortunate enough to be approaching the lifetime limit to make one last year of contributions, in some cases as much as £200,000 then freeze all future pension accrual.
So what are the rules?
The lifetime allowance is the limit on the total value an individual can build up in a pension fund during their lifetime without tax recovery charges. As detailed above, this was reduced last year from its current level of £1.8 million to £1.5 million from 6th April 2012, protection exists as detailed below.
This fixed protection is available if accrual ceases from 6th April 2012, and an individual makes the relevant applications to HMRC. For those in money purchase arrangements this broadly means no further contributions can continue, for final salary (or defined benefit) pensions the rules are more complex.
Protection is also in place for those who opted for primary or enhanced protection on or around 6th April 2006. As these elections should already have been granted, these are not covered in this post.
The rules are complex, and care should be taken. Importantly the rules do not just affect those with benefits at £1.8m, but could affect others, including (but not limited to):
- Those with combined defined benefit and money purchase benefits
- Those who expect benefits’ values to increase quicker than the lifetime allowance increases, even if they are below the lower £1.5m value (which is likely to be frozen for five years)
- Those who do not have full entitlement to lifetime allowance, most commonly due to having already crystallising benefits. There are many events that cause benefits to be tested against the lifetime allowance, ‘retirement’ (more correctly ‘crystallising’ benefits), or death are the most common, but not the only cases.