- Brief history
- Lifetime allowance limit
- How is it measured
- Benefit crystallisation event
- Lifetime allowance charge
- Lifetime allowance calculator
- you access part or all of your pension
- you become entitled to a company pension
- in the event of your pension increasing by the greater of 5% or the retail price index (RPI)
- when you reach 75 years old
- move your pension into a QROPS
- in most cases where a lump sum is paid or payments continue after death
The measurement involves calculating the pension’s value against the relevant lifetime allowance rate accounting for any protection to establish a percentage. This percentage is added to any previous pensions that you have had assessed against LTA to determine whether or not you have exceeded the allowance. If 100% is exceeded you will be liable for a lifetime allowance excess tax charge.
The pension value is dependent on the type of pension you hold;
Each form of protection has a time limit in which it can be applied for so, if it is beneficial, ensure that the necessary procedures are performed in a timely manner
Once applied for, primary protection cannot be lost or reduced except in the event of a pension debit. This applies in divorce where part of a pension is transferred to your ex-spouse. For example, if your pension was £3 million the increase factor is 1 ((3 – 1.5)/1.5). If 25% was transferred to your ex-spouse then the new factor would be 0.5 ((2.25-1.5) / 1.5). Your LTA rate this year would therefore be £1.875 million (0.5 x 1.25 million (tax year 2015/2016) + 1.25 million)
One condition is that no additional contributions can be made into any pension scheme in the future. Doing so will forfeit your enhanced protection. Under both cases, individuals should have already applied to HMRC and be in receipt of a certificate
As with enhanced protection you can no longer make any future pension contributions and you should have already applied and be in receipt of this protection.
Fixed protection 2016 applies the same principles as fixed protection 2012 & 2014, namely that the higher rate of £1.25 million will apply rather than the newer lower rate of £1 million. It is expected that any future reductions in the lifetime allowance limit will offer this form of protection securing the higher rate limit as applicable at the time
Individual protection is not available to those who hold primary protection since it the latter provides a higher level of coverage. The key reason someone may have individual rather than fixed protection is if they cannot be compensated for stopping pension contributions and have a pension value in excess of £1.25 million. It is, however, possible to have both fixed and individual protection
Individual protection 2016 works on the same principle as the previous version fixing your personal LTA rate as at the 5th of April 2016 subject to it being between the new limit of £1 million and the current limit of £1.25 million. It is expected that any future reductions in the lifetime allowance limit will offer this form of protection securing a higher level of protection for individuals as applicable at the time
In the case of a QROPS pension transfer (BCE 8) it is assumed that any income withdrawal will still be subject to tax. The applicable LTA tax charge is therefore based on the regular payment rate.
Any necessary payment will be made to HMRC prior to the funds being released