Pension Simplification?

Following the much publicized attempts at Pension Simplification in 2006 the Government seems to have been doing all it can since to complicate matters once more. Following on from the impending changes to the standard lifetime allowance (SLTA) which drops from 1.5 million to 1.25 million in 2014/15 it may be useful to understand the options to protect a clients pension pot.

Fixed protection 2014 (FP14)

• Offered to individuals regardless of current level of pension savings, if they do not have the existing transitional protection. 
• Under FP14 individuals will be able to have an SLTA of 1.5 million from 6 April 2014, as long as they do not accrue any further benefit from 6 April 2014. 
• Legislation is due in summer 2013 and those who want to apply for FP14 will be able to do so thereafter up until 5 April 2014. 
• FP14 will be of particular benefit to those scheme members who believe that their pension savings will continue to grow to over 1.25 million, even if they do not make any new savings from 6 April 2014.

Individual protection 2014 (IP14)

• Will also be available to offer greater flexibility in protecting any pension savings built up before 6 April 2014. 
• The consultation proposes giving individuals a personalised lifetime allowance (LTA) based on the value of their pension savings as at 5 April 2014 up to a maximum of 1.5 million. 
• But unlike FP14, IP14 will allow ongoing accrual. The personalised LTA will apply only if the individual has pension savings over 1.25 million, but no existing primary or enhanced protection. 
• The IP14 option will therefore be of particular benefit to those who want to continue saving into their pension scheme from 6 April 2014, even though they would normally have a lower LTA than they would with FP14, and will be subject to lifetime charges on the additional savings or growth. 
• It is proposed that individuals will be able to hold both IP14 and either fixed protection 2012 or FP14. FP14 will take priority over IP14, so in effect the individual who claims both will have either:
• An LTA of 1.5 million if no contributions are made and no accrual occurs from 6 April 2014; or 
• The value of their pension savings up to 1.5 million as at 5 April 2014 and the ability to make future contributions or accrual

Those with funds over 1.25 million as at 5 April 2014 should claim both forms of protection. Currently, FP14 must be claimed before 6 April 2014, while IP14 claims will have to wait until the Finance Bill in 2015.