Talking to your clients - Changes to the lifetime allowance

Tax is an ever changing world but some changes are more important to clients than others.

The date of April 2012 marks a number of such changes and it is an ideal time for you to talk to clients and help them to maximise their tax position.

Whilst you will be aware of the technical issues it is easy to forget, and find the time, to focus on explaining these to clients. Taking extracts from our Finance Act 2011 course notes, we have prepared a series of tax tips to assist you when 'Talking to your clients' to provide proactive, responsible and timely advice therefore saving you time.

Fixed protection

There were many changes to the pension rules last year, including the restriction to annual pension contributions (in simple terms) of only £50,000! However, some of the changes were deferred until April 2012.

The main changes are:

  • from 6 April 2012, the lifetime allowance will be reduced to £1.5m from the current level of £1.8m;
  • there will be a new form of protection called 'fixed protection'. This protection will be available to people who expect the amount of their pension savings to be more than £1.5m when they come to take their benefits;
  • anyone with existing primary or enhanced protection will continue to be unaffected by the reduction in the lifetime allowance; and
  • the maximum amount of pension savings that can be commuted to a lump sum instead of a small pension on grounds of triviality will no longer be linked to the lifetime allowance - it will be fixed at its current level of £18,000.

Fixed protection is available for individuals who expect the amount of their pension savings to be greater than £1.5m when they come to take their benefits on or after 6 April 2012. Anyone holding fixed protection will not face a lifetime allowance charge on funds worth up to £1.8m.

Applications for fixed protection will need to be made before 6 April 2012.

Once obtained, fixed protection will be lost if:

  • any contributions are paid into a DC scheme after 6 April 2012;
  • benefits under a DB scheme increase, broadly, other than by reference to an annual percentage provided for in the scheme as at 9 December 2010 or the increase in the CPI (measured by reference to September in the previous tax year and the same period 12 months earlier);
  • a new pension arrangement is started other than to accept a transfer of existing pension rights.

Key point

If you think that fixed protection may apply to certain clients then they don't have long to act. Make sure you contact them ahead of the deadline.

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