Lifetime Allowance: Individual Protection 2014

As a consequence of the reduction in the lifetime allowance from £1.5m to £1.25m from 6 April 2014, individual protection 2014 (IP14) is being introduced. This is an addition or alternative to fixed protection 2014 (FP14) introduced last year. Individuals may apply for both FP14 and IP14. Where someone has both, FP14 will take precedence but if this is lost the individual will revert to IP14. Individuals may apply for IP14 between 6 April 2014 and 5 April 2017. Those with IP14 will have a personalised lifetime allowance equal to the value of their pension savings on 5 April 2014, subject to an upper limit of £1.5m. They will be able to carry on actively saving in a registered pension scheme, but upon taking their benefits will be subject to the lifetime allowance charge on any excess savings over their personalised lifetime allowance.

Increasing Pension Flexibility

The following measures increase flexibility in relation to pension savings:

  • an increase in the maximum drawdown pension from a capped drawdown pension fund from 120% to 150% of the basis amount (applying to drawdown pension years starting on or after 27 March 2014);
  • a reduction of the minimum income threshold for flexible drawdown from £20,000 to £12,000 (for applications for flexible access made on or after 27 March 2014);
  • allowing members over 60 with total pension savings of £30,000 or less to take the whole amount as one or more trivial commutation lump sum (for commutation periods starting on or after 27 March 2014);
  • removal of the revaluation factor in calculating the portion of the commutation limit absorbed by previous benefit crystallisations;
  • an increase from £18,000 to £30,000 in the limit for lump sums from small pots where an annuity is in payment (for payments made on or after 27 March 2014);
  • an increase in the general small pots limit from £2,000 to £10,000 – this also applies in cases where transitional protection of lump sums in excess of 25% of total pension rights applies (for payments made on or after 27 March 2014); and
  • an increase in the number of lump sums from small pots that can be taken to 3.

Pension Liberation

Changes are made to the rules governing the registration and deregistration of pension schemes in order to introduce a ‘fit and proper person’ test in relation to scheme administrators and to deny registered status where a scheme has been established for purposes other than of providing pension benefits. There are accompanying changes to HMRC information powers and associated appeals and penalties.

Independent trustees appointed by the Pensions Regulator will not be liable in respect of tax liabilities relating to events before their appointment. This also applies to scheme administrators.

Changes relating to the surrender of rights to fund an authorised surplus payment to the sponsoring employer or in favour of dependants are aimed at a marketed avoidance scheme. Such surrenders may in future be treated as unauthorised payments.

These changes are operative from 20 March 2014, other than the ‘fit and proper person’ test and the changes relating to regulatory intervention, which are operative from 1 September 2014.