Two of the highest priorities for high earners in the run up to the end of the tax year is checking whether they should apply for Fixed Protection 2014 and whether they need to make a final contribution prior to 5 April 2014, making use of carry forward relief where appropriate.
Please note that the reduced lifetime allowance from 6 April 2014 is £1.25m.
If your pensions savings are worth more than this when you take your benefits, you’ll have to pay the lifetime allowance tax charge on the excess unless you have some form of lifetime allowance protection. The Fixed Protection 2014 is designed to protect those who have built up pension pots of £1.25m but no more than £1.5m.
Fixed Protection 2014 (FP14)
Eligibility for FP14 is easy and applications require very little information. Those who are a member of a registered pension scheme on 6 April 2014 and do not have an earlier form of protection (primary, enhanced or fixed protection) are eligible. Applications can be made online up to 5 April 2014 and do not require a valuation of pension rights to be included.
Once made, you will be able to take pension savings worth up to £1.5m without paying the lifetime allowance charge.
5 April 2014 deadline for contributions and carry forward of 2010/11 relief
The 5 April 2014 is the deadline for contributions for any client applying for FP14. It is also the deadline for using up the 2010/11 annual allowance via carry forward for those whose pension input period is aligned with the tax year.
Important conditions have to be met to be able to utilise carry forward and there is a strict order to how it is used. Before carry forward can be utilised, you must first use the full allowance for the current tax year. To be eligible to carry forward unused allowance from previous tax years, you must have been a member of a UK registered pension scheme at some point during the tax years in question and must have sufficient relevant earnings to gain tax relief on the contribution.
Please give us a call if you would like further advice on the pensions carry forward relief.
Auto-enrolment and enhanced/fixed protection
Whilst auto-enrolment is designed to encourage pension provision, it is clearly not relevant to those with Enhanced Protection or Fixed Protection.
You should be aware that if you have a form of lifetime allowance protection it will be lost if there is further build-up of pension, so if you are auto-enrolled by an employer then you should opt out within the short deadline to avoid loss of that protection. Opting out is done by notifying the employer in the form that they specify.
If you have any pensions queries or concerns please do give one of our team a call.