Media Briefing Note: Warning for High Earners – Apply now for 'Fixed Protection' to Combat Reduction in Lifetime Allowance

LONDON, 9 March 2012

The Issue

On 6 April 2012 the Lifetime Allowance for tax-efficient pension savings will reduce from £1.8 million per person to £1.5 million.  Anyone who already has pension savings of £1.8 million could incur a tax charge of £165,000 after this reduction without protection.

The Solution

High earners might therefore wish to take advantage of a new, tax-efficient form of protection for pension savings, called 'fixed protection', under which tax-efficient pension savings of up to £1.8 million per person will continue to be available after the Lifetime Allowance reduces. Anyone can apply to HM Revenue & Customs (HMRC) for fixed protection but it is likely mainly to benefit individuals with pension savings worth more than £1.5 million.  Applications to HMRC must be made on form APSS227 by post only.  The deadline for applications is 5 April 2012 and HMRC will not accept any late applications. Those who already have 'enhanced' or 'primary protection' will be ineligible.

A Warning

There remain significant restrictions for individuals with fixed protection.  Depending on the type of pension scheme of which you are a member, any contributions made or benefit accrual after 5 April 2012 is likely to result in fixed protection being lost.  In addition, joining a new pension scheme and making transfers outside the permitted criteria will result in fixed protection being lost.  Moreover, these restrictions are tested on an ongoing basis and it is possible for fixed protection to be lost at any time, even inadvertently and without the individual’s knowledge.  It is therefore important that individuals applying for fixed protection consider the restrictions carefully and take independent financial advice before applying.

Commenting on the upcoming reduction in Lifetime Allowance Jane Samsworth, Head of Pensions at Hogan Lovells, said:

"Anyone expecting a defined benefit pension of £75,000 per annum or more and anyone with defined contribution pension savings even approaching £1.5 million should seriously consider fixed protection ".

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