What is it?
As well as fixed protection 2014, the Government announced that Individual Protection 2014 (IP2014) would be available when the lifetime allowance reduced to £1.25 million from 6th April 2014.
What this will give you is a personal lifetime allowance equal to the value of your pension rights on 5th April 2014 up to a maximum of £1.5 million. You will not lose IP2014 by making further savings to your pension scheme. However, any pension savings in excess of your lifetime allowance will be subject to a lifetime allowance charge.
If you hold either FP 2012 (See: Fixed Protection 2012), or FP2014 (See:Fixed Protection 2014) and IP2014 at the same time then the Fixed Protection will take precedent over Individual Protection, so initially you will have a higher Lifetime Allowance with the rules that go with that.
Unlike some previous forms of protection you WILL be able to hold both FP2014 and IP2014, although you can’t have applied for them at the same time.
Why has it been introduced?
If you have a lifetime ‘pot’ over £1.25m you will be taxed on the excess over this, or your IP2014 figure (to the maximum of £1.5m). Therefore you may want to ask yourself ‘why would I still want to contribute to my pension, possibly feeding an extra tax liability?’. It could be that as an active member of the scheme you are still able to benefit from other elements, the key two being:
- Life cover
- Sick pay
You will have to give careful consideration to the need for these valuable additional benefits and the cost (continued contributions), the possible tax liability if you are over the Lifetime Allowance AND your personal circumstances.
When can you apply?
IP2014 can be applied for FROM the 6th April 2014. This is completed by an online form. You will need to know the value of your NHS and other benefits as of April 2014 to complete the application.
How long have you got to apply?
The window for applying for IP2014 will need to be longer than for FP2014, as individuals may need to get valuations from all their pension schemes.
The Government has set a three year window for applications for IP2014. So applications will have to be received by HMRC by 5th April 2017.