The pension Lifetime Allowance is the maximum value of benefits that can be taken from a registered pension scheme without being subject to the Lifetime Allowance charge. This is reducing from £1.5 million to £1.25 million on 6th April 2014.
To compensate for this reduction, there are two new types of protection available – Fixed Protection 2014 and Individual Protection 2014.
Fixed Protection 2014, which has to be applied for by 5th April 2014, allows the lifetime allowance to remain at £1.5 million and must to be applied for by 5th April 2014. Further contributions or benefit accrual after this date will result in the loss of the protection.
Individual Protection will be available to those with pension savings worth more than £1.25 million on 5th April 2014. This will give a protected lifetime allowance equal to the value of their pension savings on this date subject to a limit of £1.5 million. Further contributions or benefit accrual after 5th April 2014 won’t lose the protection. Individual Protection cannot be applied for until after 5th April 2014.
You can apply for both protections separately but you will lose the Fixed Protection if there are further contributions or accrual after 5th April 2014.
It is imperative to seek professional advice if you think the Lifetime Allowance will affect your pension planning. If you exceed the limits, penal tax charges will apply.