Lifetime allowance protection

Snow_Phoenix

Hi,

Sorry if this seems like a very simple questions but we do not understand much about pensions. My husband has been asked to sign a form to transfer to a new pension scheme for work and they want to know if his pension savings are protected by the lifetime allowance protection.

From the looking on the gov.uk website I can see there was a scheme for April 2016, he does not think he has signed up to it and can not recall being given any reference numbers. Is it worth signing up after the transfer has happened or was it a time limited process?

Thank you in advance for any responses.

jamesperrett

You only need worry about this if your pension was worth 1 million+ in 2016. If your pension was worth less than 1 million in 2016 you will have no lifetime allowance protection and it isn't something you can obtain now.

gm0

Documentation on this is a bit inpenetrable. Consumer not advisor. Nothing here is advice. A bit of background on protection for you.


There have been various schemes since pensions were reformed and the life time allowance was introduced and then scaled back to £1m. They typically have names with Individual or Fixed protecion 20xx (year). If you had a large pension pot when the reforms at so called A-day or those since 2012/14/16 came in cutting the lifetime allowance then it was possible but not compulsory to apply and protect an existing pension allowance (a higher lifetime allowance from before the "cut"). This was usually on the basis that you did not save any more from then on. This avoids retrospective taxation of saving decisions made in good faith.

Some protections are an online registry, some are paper certificates. But you would not have it unless you specifically applied for it. A scheme would likely not typically do it for you though an IFA might well suggest to you that this be done if your situation required it. It is a "self service" DIY item for the tax payer but many people with busy lives - even those with occupational pensions haven't heard of it and wouldn't think to go and look for it.

A new scheme need to ask as the tax consequences of contribution to some "protected pensions" are severe - if the protection which blocks contributions is lost then 25% of any value over the basic allowance previously sheltered by the protection then appears as extra tax to be paid later (scaled up after growth) when the pension is taken or at 75 in addition to any income taxes as due. They also need to know for transfers to setup your personal LTA to the right value (default or one of the many protections)

If you think that the current pension fund, with sensible growth assumptions and your contributions will reach or breach £1m by 55 or 75 then you need to consider the Lifetime allowance and whether all your saving should/should not go into this tax wrapper vs alternatives ISAs etc. If the fund size is LTA relevant and if you are at a point where earnings and contributions are naturally slowing or stopping anyway then a protection scenario to "lock in" the current rules may become relevant.

Hope this helps.

Snow_Phoenix

Thank you both for your response. I thought it was not going to apply to us as we are unlikely to exceed the 1m threshold and this has confirmed what I had already read.

Many thanks again.