As you may recall the coalition government announced in the Autumn statement that they plan to reduce the Lifetime Allowance from £1.5 million to £1.25 million with effect from 6th April 2014.
There will be an opportunity for individuals to apply to protect their benefits up to the current limit of £1.5 million from the 55% Lifetime Allowance Charge. Any excess above £1.5 million will still be subject to the Lifetime Allowance Charge.
This will be known as Fixed Protection 2014, and a condition is that no further benefits can accrue post 6th April 2014.
It is important to note that applications must be made by 5th April 2014 – and there will be no extension to this deadline.
The application process will be made available once the Finance Bill 2013 has received Royal Assent which is expected by early July.
I believe we now have to consider the possibility that the Lifetime Allowance may not increase in the future – and there is a very real possibility that it may reduce further in the future.
An important issue is to consider which clients may need to consider applying for Fixed Protection 2014, as it is not the value of the benefits now but what they will be worth when benefits commence – i.e. when the client has a Benefit Crystallisation Event.
The graph below shows that this change may affect a lot more people than some may think. The example shown is for a spouse who receives a pension sharing order at age 48 of £440,000 and the investment fund grows at 6.5% per annum gross (this is not unrealistic with the Cautious and Balanced risk portfolios we manage) and assumes that the Lifetime Allowance does not increase in the future. This individual will need to consider now the application for Fixed Protection 2014.
The coalition Government has just launched a consultation paper on a form of ‘Personalised Protection’ which will allow individuals to continue to accrual further benefits post 6th April 2016 and we will provide further information on this as final details become available.
If we consider the possible implication of Hurlingham Estates v Wilde & Partners it is clear that it is important to consider any clients that this may affect.
I would highlight that we are aware of some actuarial firms who are not taking these important issues into account when preparing pension reports.
It is important that any financial advisers who have assisted your clients in the past or currently with implementations are considering these issues with clients – we certainly are already compiling our list of clients to contact.
I hope that this has been of assistance but should you have any queries then please do not hesitate to contact me.