Lifetime pension allowances

Our last newsletter set out recent to changes to both the Annual and Lifetime pension allowances that came into effect from April this year. This article focuses on the Lifetime Allowance and the ways of protecting your pension from the reduced limits.

To recap, the Lifetime Allowance is the maximum value that your pension pot can amount to on retirement without triggering a tax charge. The Lifetime Allowance was reduced from £1.5m to £1.25m in April 2014 and then again to £1m in April 2016. However there are ways of protecting against these reductions such as ‘Fixed Protection’ and ‘Individual Protection’. The former is less popular as it means you can no longer make pension contributions into the NHS scheme but Individual Protection is less restrictive and is proving popular with many GPs with large pension pots. There are currently two types of Individual Protection available: IP2014 and IP2016.

IP2014 is only relevant to GPs with pension pots of between £1.25m and £1.5m as at 5 April 2014 as it gives them a ‘personal’ lifetime limit equal to the value of their pension pot at this date.

GPs have until 5 April 2017 to apply for IP2014. The application to HMRC needs to be made online through the Government Gateway. In order to complete the application you will need to obtain an IP2014 valuation from NHS Pensions (who are likely to be inundated with such requests over the coming months) confirming the value of your pension pot at 5 April 2014. A charge will be made by NHS Pensions for supplying this information. If you think you are affected and need to apply for IP2014 then action needs to be taken now.

IP2016 works in a similar way to IP2014 and is relevant to GPs with pension pots of between £1m and £1.25m at 5 April 2016. However NHS Pensions will not be in a position to supply IP2016 valuations until 2018 so you do not need to take any action at present.

It is imperative that GPs take advice from a qualified Independent Financial Adviser (IFA) regarding their pensions as failure to act now may have long term consequences for you and your family.

You should always send copies of correspondence you receive from NHS Pensions to your accountant / IFA as soon as you receive it in case action needs to be taken.

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Stephen Hillyard

Manager, Audit & Accounts
I am a manager in the Audit and Accounts Team, specialising in medical clients (including GP practices, hospital consultants and locums) and owner managed businesses.

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