HMRC Lifetime Allowance (LTA) Protections – now available
Earlier this year we highlighted how those of you with large pension savings may wish to consider a form of protection given the Government changed the Lifetime Allowance (LTA), (the maximum amount of money you can save into pension over your lifetime without incurring an additional tax charge). We wanted to let you know that the online application process for these protections is now available on the HMRC website.
If you’re a current employee and you’ve previously applied for a form of protection or you’re about to apply for a form of protection then please let us know so we can update our records.
What were the changes?
The Government introduced the following changes to the value of the LTA:
- The LTA reduced to £1m from £1.25m with effect from April 2016; and
- In future, the LTA will increase in line with inflation from April 2018
To protect any individuals who may be adversely impacted by the sudden reduction in LTA, two forms of protection were announced:
- Fixed Protection 2016; and
- Individual Protection 2016
Fixed Protection 2016 will allow you to keep a LTA of £1.25m but you won’t be able to build any further pension benefits after 5 April 2016. Any savings built up beyond 5 April 2016 will result in the loss of Fixed Protection 2016. You would therefore have needed to opt out of all pension saving arrangements no later than 5 April 2016 to qualify for Fixed Protection 2016.
Individual Protection 2016 will allow you to keep a personalised LTA equal to the value of your benefits at 5 April 2016 (to a maximum value of £1.25m). This form of protection can only be taken if the value of your benefits at 5 April 2016 is above £1m. If this is the case, the value of your benefits at 5 April 2016 can be preserved up to a maximum value of £1.25m. This form of protection will allow you to continue to build up benefits after April 2016 without losing your Individual Protection.
More information on these protections can be found here and on the HMRC website by clicking here. If you’re considering applying for either of the above protections, you may choose to consult with an Independent Financial Adviser.
The Telefónica Pensions Team,