Pensions – 5th April 2012 is the final date to register a claim for fixed protection

Fixed protection
The standard lifetime allowance, which effectively sets a limit on the normal tax-efficient maximum value of your pension benefits, will fall from £1.8m to £1.5m from 6 April 2012. The move was legislated for last year along with provisions for a special transitional relief, ‘fixed protection’, which allows you to keep your personal lifetime allowance at a minimum of £1.8m.

Unfortunately, fixed protection is not the get-out-of-jail card, which it at first appears. If you opt for fixed protection, you cannot retain an older transitional relief, enhanced protection. More significantly, fixed protection will be lost if, after 5 April 2012, further pension contributions are made or you accrue extra benefits. Thus fixed protection is only likely to be relevant to you if you have already built up substantial pension benefits. Even then, careful calculations are required before making a final decision.

Fixed protection is part of year-end planning because 5 April 2012 is the final date to register a claim. This has to be made on a special form (APSS227) and sent to HMRC Pension Schemes Services office in Nottingham, not your local tax office.

This is the first tax year-end in which the new £50,000 annual allowance and carry forward rules need to be taken into account when planning year-end pension contributions. April 5 will be the last date on which you can use unused relief on contributions of up to £50,000 from 2008/09, as the carry forward is limited to three tax years. How much unused relief you have available can be a complex calculation, so, if you think carry forward could be relevant, start seeking advice as soon as possible.

Maximising contributions now by using carry forward could be particularly valuable if you are opting for fixed protection, because of the cap this option places on future contributions and benefit accrual.

If you are thinking of making a large pension contribution before the end of the tax year I would encourage you to do so before the budget on 21 March 2012 as there are rumours that higher rate tax relief or the annual allowance will be reduced.

If you have any questions regarding pensions and retirement planning, please contact us on 020 3865 2379

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