Posted by Nick Day on 19 Dec 2012
Autumn Statement 2012 – Pension Update
The Chancellor delivered his Autumn Statement on 5 December 2012 and announced the following headline measures relating to pensions:
- The Annual Allowance (“AA”) is to be reduced to £40,000 (from the 2014/15 year onwards).
- The Lifetime Allowance (“LTA”) is to be reduced to £1.25m (from the 2014/15 year onwards).
- Protection against the reduced LTA will be available for certain individuals who have pension pots exceeding £1.25m on 5 April 2014. An election will be required.
- The capped drawdown limit will go up for all pensioners from 100% to 120% of the value of an equivalent annuity. The capped drawdown limit is the maximum amount which a pensioner using this process is entitled to take from their pension scheme.
Annual Allowance (AA)
The reduction in the AA had been forecast and many thought it would be reduced by more.
HM Revenue & Customs (HMRC) has confirmed that the relief available to be carried forward will remain based on the actual historical AA for the year concerned, so for example, it will be possible to carry forward unused AA of up to £50,000 from the three years prior to 2014/15.
One knock on effect of the reduction in the AA will be that individuals participating in on-going Defined Benefits pension schemes will be at risk of seeing their entitlements exceeding the new AA, and therefore creating a tax charge.
Lifetime Allowance (LTA)
The reduction to the LTA was not widely anticipated.
The new 2014 fixed protection regime will operate in the same way as the prior fixed protection regime, when the LTA reduced previously in April 2012. Individuals will be able to elect for fixed protection by 5 April 2014.
HMRC also intends to introduce a “personalised protection regime” which will give an individual an LTA of their pension rights on 5 April 2014 (up to £1.5m) or the standard LTA, whichever is greater. However, contrary to the fixed protection rules, the individual will be able to accumulate further pension savings in their fund without losing that protected LTA. Any savings exceeding the individual’s LTA will be subject to a tax charge when the individual takes their benefits. This new personalised protection regime will only be available to those whose pension pots exceed £1.25m on 5 April 2014. HMRC will hold a consultation on whether it should be open for individuals to apply for both fixed and personalised protection.
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