Thursday, 13 December 2012 13:33
This year's Autumn statement by the Chancellor of the Exchequer raised two key issues for pension schemes. These concern reductions to both Annual Allowance and Lifetime Allowance.
Members and employers should be aware of:
1. Annual Allowance (AA) reduced to £40,000
The AA is the maximum amount that a person's pension savings can grow in the year without a tax charge being incurred. The AA is currently set at £50,000 for the 2012/13 tax year. This will be reduced to £40,000, however, the reduction does not take effect until the 2014/15 tax year. This means those who may be affected will have time to plan for the reduction.
Where a member's pension savings exceed the AA for a particular year, it may be possible to carry forward any unused allowance from the previous three years. No changes to the carry forward rules have been proposed. This means that the higher AA that applied to the tax years 2011/12 and 2013/14 can still be carried forward and used in 2014/15.
If the growth in benefits in the scheme exceeds the AA plus the carry forward of unused AA from the previous 3 years, and the charge is £2,000 or more, members will have the option for the scheme to pay the AA charge (or a proportion of the AA charge) to HMRC on their behalf. The Scheme Pays option remains unchanged.
2. Lifetime Allowance (LTA) reduced to £1.25 million
The LTA will be reduced from £1.5 to £1.25 million with effect from 6 April 2014. The LTA is the maximum amount you can take in pension benefits during your lifetime from all pension schemes before an additional tax charge is incurred. If the LTA is exceeded, you will be subject to the LTA charge.
Fixed Protection 2014
The current Fixed Protection introduced for the reduction in AA in April 2012 is to be extended. It will offer existing scheme members protection from the reduced limit by allowing them to keep a £1.5 million LTA. However, detailed conditions must be complied with. These are available from HMRC website.
Chancellor of the Exchequer's Statement (5th December 2012).