Transitional Reliefs

Question 1

Can you make contributions to a pension if you have enhanced protection?

Answer 1

Not to a Money Purchase plan otherwise you will lose enhanced protection. You can remain a member of a Defined Benefit scheme but the permitted level of benefit accrual is limited.

Question 2

What is primary protection?

Answer 2

Available to those who had pension benefits (crystallised & uncrystallised) on 5 April 2006 valued at equal to or greater than £1.5m (the LTA on 6 April 2006).

Question 3

Can you continue in a pension scheme with primary protection?

Answer 3

Yes

Question 4

How does primary protection work?

Answer 4

Members have a personal LTA. Calculated by a lifetime allowance enhancement factor. Increased in line with LTA increases.

Question 5

What was the minimum pension value at 5 April 2006 required for enhanced protection?

Answer 5

There was no minimum

Question 6

What timescale must you report to HMRC the loss of Fixed Protection?

Answer 6

90 days or £300 fine.

Question 7

Can you continue to contribute to a pension & retain Fixed Protection?

Answer 7

No.

Question 8

What is the personalised LTA for someone with Individual Protection?

Answer 8

The higher of the standard LTA or the value of their pensions as at 5 April 2014 (max £1.5M)

Question 9

What is the minimum pension value required for someone wanting to apply for Individual Protection 2014?

Answer 9

£1.25m

Question 10

What is the deadline for applying for Individual Protection 2014?

Answer 10

5 April 2017.

Question 11

Primary Protection:- How do you calculate a lifetime allowance test?

Answer 11

Total pension value at 05/04/06 less £1.5m divided by £1.5m.

This factor is then used to calculate the increase to the underpinned LTA at the time of crystallisation. The factor is quoted in the primary protection certificate & rounded to two decimal places.

Question 12

What is ‘relevant benefit accrual’?

Answer 12

Applies to enhanced protection.

For money purchase:-
Certain conts providing death benefits

For defined benefits:-
If value exceeds the ‘appropriate limit’. (Based on the increase in the value of pension rights between 05/04/06 & crystallisation. Appropriate limit is the higher of 5%pa or the rate set in the scheme or RPI, or the value of pension increased in line with earnings.

Question 13

What timescale must you notify HMRC if enhanced protection is revoked?

Answer 13

90 days or fined up to £3,000.

Question 14

Scheme protected lump sum:- how do you calculate it?

Answer 14

Value of lump sum entitlement on 05/04/06 divided by value of pension X 100.

Question 15

Primary Protection:- Calculating the additional factor. What value does a £40k pa occupational scheme in payment represent?

Answer 15

£40k X 25 = £1m

Question 16

Primary Protection:- Calculating the additional LTA factor. What value does a deferred pension of £5k pa provide?

Answer 16

£5k X 20 = £100k

Question 17

Primary Protection:- Calculating the additional factor. Client A is taking £11k pa from an income drawdown plan, which represents 50% of HMRCs Max at last review. What value is given to this when calculating the LTA?

Answer 17

£11k X 2 = £22k

X 25 = £550,000