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Autumn Statement: Gov't plans 'personalised' protection for pension savers

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Autumn Statement: Gov't plans 'personalised' protection for pension savers

The government is planning a new protection regime to counter the lowering of the pensions lifetime allowance from £1.5 million to £1.25 million.

To protect people from retrospective tax charges HM Revenue & Customs (HMRC) said it would consult on plans for a personalised protection regime as part of the changes, which have also seen the annual allowance reduced from £50,000 to £40,000.

It is said the planned personalised protection will give individuals a lifetime allowance equal to the greater of the value of their pension rights on 5 April 2014, up to £1.5 million, and the standard lifetime allowance, which will be £1.25 million from April 2014.

Unlike fixed protection 2014, individuals with personalised protection can carry on saving in their pension scheme without losing their protection.

HMRC is also planning to introduce a transitional fixed protection regime. It will mean individuals who apply for fixed protection 2014 will have a lifetime allowance of the greater of £1.5 million and £1.25 million from April 2014. Those who apply for fixed protection will not be allowed to carry on saving into their pension without losing their protection, although those who opt for personalised protection will.

However there are two provisions:

  • Any pension savings above the individual’s lifetime allowance will be subject to a lifetime allowance charge when benefits are taken;
  • Personalised protection will only be available to those with pension pots over £1.25 million on 5 April 2014.

There are no proposed changes to the annual allowance carry forward rules. The amount of any unused allowances arising from the tax years 2011-12 to 2013-14 and available for carry forward to 2014-15 and subsequent years will use the £50,000 limit.

This means in 2016-17 savers will be able to carry forward up to £50,000 from 2013-14.

The carry forward limit for unused allowances arising in from 2014-15 and 2015-16 will be £40,000.

Chancellor George Osborne said the cuts to the lifetime and annual allowance would save £1 billion in tax relief each year.

In 2010 Osborne reduced the annual allowance from £255,000 to £50,000. Before the 2012 Budget in March there was speculation the government wished to limit pensions tax relief for the wealthy, however no changes were made then.

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