On 6th April 2014 changes to the lifetime allowance threshold for pensions could affect hundred of thousands of people who have diligently saved for their retirements over many years. Introduced in 2006 when it was set at £1.8 million, the lifetime allowance threshold is a cap above which pension savings are taxed at punitive rates of up to 55 per cent. The threshold was cut to £1.5 million in 2012 and will reduce still further to £1.25 million next month.
The cap applies to all pensions savings with the exception of the state pension and although £1.25 million sounds like a huge sum, these changes will affect thousands of British retirees. In fact HM Revenue and Customs (HMRC) estimate that 360,000 individuals will be affected.
Now is the time to act if you think you might be affected by the changes as there are steps that savers can take to protect their investments. The first option is available to individuals with pension savings of between £1.25m and £1.5 million. They can apply to HMRC for “fixed protection 2014” which will keep their lifetime allowance threshold at £1.5 million although they will be unable to make any further contributions.
A second, more preferable, option which is available to some British expats, is to transfer the pension into a Qualifying Recognised Overseas Pension Scheme (QROPS). QROPS transfers are tested against the lifetime allowance threshold at the time your pension is transferred. This means that you are not restricted with regard to further contributions and can continue to grow your pension savings without the risk of exceeding the lifetime allowance threshold in the future.
Time is running out for those wishing to take these steps to protect their pension pots. If you would like to find out if the changes affect you or explore QROPS options for your pension get in touch today before it is too late.
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