If your pension savings are projected to be valued in excess of £1.25 million by the time you reach retirement, then you urgently need to consider whether to register for ‘Fixed Protection’. This may sound a lot of money and seem only to be relevant for the very wealthy but if you have a decent company pension accrued from the past or are still say 10-15 years from retirement, it is quite easy for the “Lifetime Allowance” to be exceeded. The Lifetime Allowance is the maximum amount that you can save into pensions throughout your lifetime without suffering a tax charge at retirement.
The deadline for registering for fixed protection is 6 April 2014. On that date, the pensions “Lifetime Allowance” will be reduced from £1.5 million to £1.25 million.
Registering for fixed protection by the start of the next tax year enables you to retain the existing lifetime allowance of £1.5 million.
If, at retirement, your pension savings exceed the Lifetime Allowance a ‘recovery’ charge is levied on the excess amount. The figure charged depends on how you decide to draw the excess amount:
- If it is paid as a pension income, the excess amount is subject to a tax charge of 25%. This is on top of income tax which is levied on pension income.
- If it is taken as a lump sum the excess amount is subject to a tax charge of 55%.
If you are unsure whether you are affected, then we strongly suggest a meeting with Zac of Magus Financial Planning, our IFA partner over the next few weeks to consider your options, before it is too late.