Taxbriefs Commentary Library

Pension annual and lifetime allowance reductions

Ian Naismith, 29 Jan 2013


The reduced lifetime and annual allowances from the 2014/15 tax year create some important pension planning opportunities for advisers and their clients.

The annual allowance falls from £50,000 to £40,000, increasing the importance of fully utilising the available allowance, including carry forward for clients wishing to maximise contributions.

The lifetime allowance reduction to £1.25 million will mean that clients may need to adjust their expectations of pension income unless they can take advantage of one of the new protections. Fixed protection 2014 will allow clients to retain a personal lifetime allowance of £1.5 million if they stop contributing to their pension, and may be valuable for those who have accrued less than £1.25 million but anticipate exceeding that limit through investment growth. It will operate in a similar way to existing fixed protection.

The proposed personalised protection may present the better planning opportunities. It will allow all individuals to retain a lifetime allowance of at least £1.5 million, but with the ability to continue contributions. The condition is that accrued pension at 5 April 2014 must be at least £1.25 million. This means that for some clients it may be worth funding heavily in tax years 2012/13 and 2013/14, using carry forward where possible, to reach the threshold. This is most likely to be worthwhile for those close to retirement because only 20% growth in the period to retirement would take them over their protected allowance.

Some who already have fixed protection may wish to consider personalised protection if there is a possibility that their pension pot could end up under £1.5 million. This will give them the ability to top it up if necessary. This decision may depend on whether personalised protection is ultimately allowed alongside fixed protection.

The government will consult on personalised protection over the next few months, and if it goes ahead as proposed, the detailed strategies should become clearer.

This article appeared in the January edition of Financial Timesaver – the monthly digital newsletter for the busy financial adviser.


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Ian Naismith

Actuary & Author

Ian Naismith is an actuary with over 30 years' experience of working in pensions for a major life office.  He writes and presents extensively, including an annual report on pension provision in the UK based on a large  consumer survey.  He is a Governor of the Pensions Policy Institute.    

Ian is also co-author of Pensions and Retirement Planning 2012/13, part of Taxbriefs Adviser Guides Series.


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