Questions and answers

Pensions Protection – Key Questions

What is A Day?

The new pension regime started on 6 April 2006 and this was known as A Day. 
 
How much can I invest?

The current funding rules are based upon an “annual allowance”. The annual allowance figures for the current and the next two years are:

08/09	09/10	10/11
£235k	£245k	£255k

An individual is able to contribute the lower of the allowance or relevant income. If a contribution is made to a pension scheme in the year when you vest all your benefits within that scheme, it will not be tested against this allowance but against the lifetime allowance.

What is the lifetime allowance?

This is how the Inland Revenue prevents excessive pension savings from building up within registered pension schemes. The statutory lifetime allowance figure for the 2006/07 tax year was £1.5m, and the figures for the current, last and next two years are:

07/08	08/09	09/10	10/11
£1.6m	£1.65m	£1.75m	£1.8m

What happens if I exceed the lifetime allowance?

You will be tested at the time you take your benefits and would be subject to a penal tax charge unless you get protection from the lifetime allowance charge by registering with the Inland Revenue either for:

Primary Protection, or  Enhanced Protection

What is Primary Protection?

This is available to you if you have pension assets in excess of £1.5 million before A Day. The fund value will be indexed in line with the increases made to the statutory lifetime allowance up to the date when you take your benefits.

What is Enhanced Protection?

This is available to everyone regardless of size of pension fund pre A Day but, contributions to all existing money purchase pension arrangements, & benefit accrual under any defined benefit arrangement will have to cease. Also, if you opt for enhanced protection you will not be allowed to become an active member (or make additional contributions) in any new post 6 April 2006 registered pension scheme.

Why should I opt for Enhanced Protection?

If you believe that your pension will in the future exceed the lifetime limit then you should register for enhanced protection. This is most likely where you are a way off from taking your benefits, if you think your investment will have very strong growth (or a combination of both). If you are unsure then you should seek professional advice.

What is the deadline for applying for Protection?

The deadline for applying for protection is 5 April 2009, after this date any applications for protection will not be permitted.

 

This summary represents Coutts’ interpretation of current legislation & Inland Revenue practice as at 18 September 2008