The reduction in the Life Time Allowance ? Scheme Administrators please spread the word
30 November 2015
HMRC continue to raise awareness of the reduction in lifetime allowance and the steps that affected scheme members will need to take to protect their pension savings from a lifetime allowance tax charge, in doing so they have provided some information to scheme administrators.
“The lifetime allowance for pension savings will be reduced from £1.25 million to £1 million from 6 April 2016. As you know members of a registered pension scheme have a single lifetime allowance in relation to the value of tax-privileged benefits they can draw from their pension schemes over a lifetime. Any benefits paid out from registered pension schemes in excess of a member’s lifetime allowance are subject to a tax charge known as the lifetime allowance charge. The tax charge is 55% of any amount over the lifetime allowance taken as a lump sum and 25% of any amount taken as pension income that is over the lifetime allowance.
The pension tax rules set out when a pension scheme administrator must check whether the pension benefits arising exceed the member’s available lifetime allowance, usually when the member starts to draw a pension. However members need to be aware that decisions they make now may mean that they exceed their lifetime allowance and be subject to a tax charge in future.
Feedback from the pensions industry indicates that affected members are making decisions now and agreeing salaries and the level of pension savings for both their own and their employer contributions for 2016 to 2017. These decisions, may result in a lifetime allowance tax charge if members are not aware of the lifetime allowance reduction so we are asking you to make your members aware of the change.
Please let your members know that lifetime allowance protection regimes will be available to protect their pension savings when the lifetime allowance reduces to £1 million from 6 April 2016. There will be two new protection regimes, known as fixed protection 2016 and individual protection 2016 and these will have similar conditions to fixed protection 2014 and individual protection 2014.
Your members will be able to apply for fixed protection 2016 and individual protection 2016 by using a new on-line self-service system which will be available from July 2016. The new self-service system is still being developed and we will provide you with more information on this in due course. We are also introducing an online service for scheme administrators to check the protection status of their scheme members and again we will provide more information on this in due course.”