Lifetime Allowance: how is tax applied if you exceed?

jamesd

You can also use the small pot rule three times. This uses no lifetime allowance.

Chickereeeee

jamesd said:

You can also use the small pot rule three times. This uses no lifetime allowance.

Thanks, yes i have seen discussions about that, but at the time it came under the 'looks complex: return to it later' heading. Do you have a link to a relevant discussion to hand , please?

jamesd

It's not particularly hard, just a matter of creating a pot of suitable size then telling the pension firm that  you want to do it. The formal rules are at https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm063700#IDAIYEIC . Small Pension Pot is one discussion here.

Chickereeeee

jamesd said:

It's not particularly hard, just a matter of creating a pot of suitable size then telling the pension firm that  you want to do it. The formal rules are at https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm063700#IDAIYEIC . Small Pension Pot is one discussion here.

Hmm, this looks like I would lose my Fixed Protection 2016?

"However, where a member has funds in excess of the limit in an existing single arrangement some of which are then moved into arrangements set up for the purpose of allowing a member to take one or two/three small lump sum payments under Regulation 11A, this will involve the setting up of one or more new arrangements with potential consequences for members who have valid enhanced protection, fixed protection, fixed protection 2014 or fixed protection 2016."

jamesd

There are "potential consequences" but PTM093400 Protection from the lifetime allowance charge: fixed protection, fixed protection 2014 and fixed protection 2016: losing the protection has the specifics for FP2016 and says:

"Keeping the fixed protection when a member joins a new pension scheme 
...

An individual can only join a new pension scheme and keep their fixed protection if joining that new pension scheme is under ‘permitted circumstances’. See the next section for more information on permitted circumstances.

The most common of the permitted circumstances is when the reason for joining the new scheme is to receive a transfer of pension rights from another pension scheme. To keep the fixed protection the transfer must be a ‘permitted transfer’. So, for example, an individual could transfer benefits from one personal pension scheme into a new personal pension scheme. As long as no contributions are paid to the new personal pension scheme then the individual will be able to keep their fixed protection."

and

"Transfers that allow the member to keep their fixed protection
...

When transferring benefits, to keep fixed protection the transfer must be a permitted transfer. The following transfers are permitted transfers and will not cause loss of the fixed protection.

A transfer of pension rights from an other (i.e. non-cash balance) money purchase arrangement to another other money purchase arrangement. The money purchase arrangement receiving the transfer must be held under either a registered pension scheme or a recognised overseas pension scheme."

So I think it's permitted, though naturally you should ask the firm to confirm your understanding of the rules before doing it!