News

Read the latest Taylor Patterson company news, or news relating to bespoke pension arrangements .

Latest News


Lifetime Allowance concerns, are you eligible to apply for Individual Protection?

How are pensions valued for individual protection purposes?

How pensions are valued for Individual Protection (IP) purposes will depend on a number of facts.

Is the fund crystallised/uncrystallised, if crystallised were all benefits taken before A-Day (6th April 2006)?

In order to establish if a client is eligible to apply for Individual Protection, it is necessary to work out the value of their different pensions.

To be eligible to apply for IP2014, the applicant must have total pension benefits with a value over £1.25 million on 5th April 2014 and for IP2016 over £1 million on 5th April 2016.

Below we demonstrate how different pensions should be valued for this purpose.

Uncrystallised funds

Type Valuation for IP2016 Valuation for IP2014
Money purchase Fund value on 5th April 2016 Fund value on 5th April 2014
Defined benefit 20 x annual pension accrued to 5th April 2016 (plus non commutable lump sums) 20 x annual pension accrued to 5th April 2014 (plus non commutable lump sums)

Benefits crystallised since A-Day (6th April 2006 onwards)

Valuation for IP2016 Valuation for IP2014
The amount (not percentage) crystallised x £1.25m/LTA at BCE date* The amount (not percentage) crystallised x £1.5m/LTA at BCE date*

 

* If Fixed Protection 2012 or Fixed Protection 2014 were in place at the date of the Benefit Crystallisation Event (BCE), the Lifetime Allowance (LTA) at the BCE date would be £1.8m or £1.5m respectively.

Benefits in payment since before A-day (IP2014)

If there have been any BCEs – 25 x the annual rate of pre A-Day pension (or 25 x the maximum capped drawdown amount based on the last review) at the time of that BCE multiplied by £1.5m/LTA at the date of BCE.

If no BCEs – 25 x the annual rate of pension (or 25 x the maximum capped drawdown amount based on the last review) as at 5th April 2014.

Total value (IP2014)

The pension values are all added together, if this total exceeds £1.25m, this figure becomes the individual’s personal LTA except if the figure exceeds £1.5m the individual’s personal LTA becomes £1.5m. It isn’t necessary for valuations to be supplied to HMRC along with the IP2014 application, but the information should be retained for 6 years from the date of the IP2014 application.

Benefits in payment since before A-day (IP2016)

 The value is determined by the type of pension being paid and whether or not there has been a BCE between A-day and 6th April 2016.

Lifetime annuities and scheme pensions

BCE between A-Day and 6th April 2016 – 25 x the yearly pension on the BCE date x £1.25m/LTA at BCE date*

No BCE since A-Day – 25 x the yearly pension on 5th April 2016.

Capped drawdown

BCE since A-Day but before 6th April 2015 – 25 x the maximum yearly income allowed under capped drawdown on the BCE date x £1.25m/LTA at BCE date*

BCE in 2015/16 tax year – 25 x the maximum yearly income allowed under capped drawdown on the BCE date x 0.8.

No BCE since A-Day – 25 x the maximum yearly income allowed under capped drawdown on 5th April 2016 x 0.8.

The 0.8 reduction is to take account of maximum pensions going up to 150% of Government Actuary’s Department (GAD) rate.

Flexible drawdown and flexi-access drawdown

This depends on the date the fund first became flexible drawdown or flexi-access drawdown.

Flexible drawdown declaration made in a drawdown year that began before 27th March 2014 – 25 x the maximum yearly income that could have been paid under capped drawdown on the date it was designated for flexible drawdown.

If there has been a BCE, the figure is then adjusted by multiplying it by £1.25m/LTA at the BCE date*

Flexible drawdown declaration made in a drawdown year that began after 26th March 2014 – 25 x the maximum yearly income that could have been paid under capped drawdown on the date it was designated for flexible drawdown x 0.8.

If there has been a BCE, the figure is then adjusted by multiplying it by £1.25m/LTA at the BCE date*

Flexi-access drawdown (and not in flexible drawdown pre 6th April 2015) – 25 x the maximum yearly income that could have been paid under capped drawdown on the date it was designated for flexi-access drawdown x 0.8.

Total value (IP2016)

The pension values are all added together, if this total exceeds £1m, this figure becomes the individual’s personal LTA except if the figure exceeds £1.25m the individual’s personal LTA becomes £1.25m. It isn’t necessary for valuations to be supplied to HMRC along with the IP2016 application, but the information should be retained for 6 years from the date of the IP2016 application. If a scheme administrator is asked to provide a valuation for IP2016 purposes, this must be supplied within 3 months.

For further information on the lifetime allowance or how to apply for the various different protection regimes, please contact your usual financial adviser or alternatively Kerry Houghton on 01772 550614 or via email kerry.houghton@taypat.co.uk

 

Make an enquiry

Personal Details

Organisation Details