Our article about pensions protection and advice including individual protection and the new allowance
The lifetime allowance was cut from £1.5m to £1.25m on 6 April 2014, and cut again to £1m on 6 April 2016. Individuals who had pension savings in excess of those thresholds at the date the limit was changed, can apply to protect their lifetime allowance at the higher value of their pension pots. This is called individual protection (IP).
The rules are very complex, and the taxpayer may also be eligible for fixed protection 2016. An application for the IP2014 or IP2016 must be done online using an HMRC online services account. The deadline for applying for IP2014 is midnight on 5 April 2017, but an application can be amended after that date. Specialist pensions advice will certainly be required when applying for protection of the lifetime allowance.
The Government has finally realised that people need to be encourage to take advice about pensions, so it is introducing a tax allowance from 6 April 2017 to cover the cost of up to £500 of advice per tax year. The allowance can only be used up to three times by each taxpayer, so can amount to up to £1,500 over their lifetime.
Payment for the advice will be made directly from the pension fund to the financial adviser, so it doesn’t pass through the taxpayer’s hands. The payment is treated as a tax-free distribution from the pension fund, but it doesn’t reduce the amount of tax-free lump sum the taxpayer can draw on retirement.
The taxpayer can take the pensions advice at any age, but advice must be related to drawing an income on retirement. This could include advice on whether to draw from a stocks and shares ISA, whether to use drawdown, or even if equity release using the family home is a good idea.
However, the advice can’t cover more remote issues such as inheritance tax planning.
Although the pensions advice is paid for by the pension provider, that provider is not required by law to offer the allowance, so that point must be checked first. Final salary schemes will not offer this allowance.
Written by the Tax Advice Network