From the 5 April 2012 the most you can accumulate in a pension fund will fall from £1.8m to £1.5m – the so-called lifetime allowance.
HMRC have now agreed draft legislation to protect your position if your fund exceeded, or was expected to exceed £1.5m at 5 April 2011.
The proposed protection scheme, known as ‘fixed protection’, is designed to benefit individuals with pension savings that are already in excess of £1.5 million, or individuals who believe that their pension savings will exceed £1.5 million (by virtue of investment growth only, without making any additional contributions) by the time that they come to take their benefits.
Fixed protection will protect all pension savings up to £1.8 million from the lifetime allowance charge. In effect individuals will be in the same position as they were before these changes. However, fixed protection will only continue to apply where an individual makes no further contributions to any existing defined contribution schemes, or receives no increase in benefit under a defined benefit arrangement above a set level. No new pension arrangements are able to be opened either, unless they are only to receive a transfer of rights.
Fixed protection must be applied for by 5 April 2012, and once given, you will be responsible for advising HMRC if you cease to meet the relevant conditions.
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