If you expect the sum of your pension arrangements to be worth more than £1.5 million when you come to take your benefits, on or after 6 April 2012, you can use Fixed Protection to protect them from the lifetime allowance charge. If you do not have either ‘Primary Protection’ or ‘Enhanced Protection’ (which you would have needed to apply for prior to April 2009) you can apply for Fixed Protection. You do not need to already have built up pension rights of more than £1.5m to apply. The Lifetime Allowance (the maximum level of pensions saving allowable without tax penalties) is reducing to £1.5 million from 5 April 2012. If you have Fixed Protection your lifetime allowance will be fixed at £1.8 million rather than the standard lifetime allowance of £1.5 million (from 5 April 2012). Your Fixed Protection will become redundant if and when the standard lifetime allowance rises to be more than £1.8 million in the future.
The disadvantage to registering for Fixed Protection is that you will need to stop building up benefits (by way of making contributions) under every registered pension scheme that you belong to by 5 April 2012.
We strongly recommend that you seek advice from your Financial Adviser regarding whether registering for Fixed Protection would be of benefit to you, given you personal financial circumstances. If you wish to register for Fixed Protection, SSAS Practitioner.com Limited can do this for you as part of our fully inclusive annual fee. The registration needs to be completed by 5 April 2012. After this date the opportunity to register will be lost.
When HMRC have received and processed the registration, they will send you a certificate to state that you have Fixed Protection. You will lose Fixed Protection if you:
1) Start a new arrangement other than to accept a transfer of an existing pension plan
2) Have benefit accrual (ie make contributions)
3) Break HMRC restrictions regarding where and how you transfer benefits (SSAS Practitioner.com Limited will advise you regarding these restrictions where necessary)
If you lose Fixed Protection then you will revert to the standard Lifetime Allowance. Therefore, if the sum your pension arrangements are worth more than £1.5m, and Fixed Protection were lost, there would be a tax charge on the excess.
Transfers between registered pensions can still take place if you are registered for Fixed Protection.
In summary, clients are only likely to need Fixed Protection if they feel that benefits from all registered pension schemes will be more than £1.5 million when benefits are taken. We strongly recommend that clients discuss this with their Professional Adviser at the earliest possible opportunity given the 5 April 2012 deadline for registration. Clients who do not have a Professional Adviser can contact us. Any clients wishing to register for Fixed Protection must advise SSAS Practitioner.com Limited in writing. We will then effect this registration on clients’ behalf as part of our annual fully-inclusive flat fee of £800 + VAT.
