Questions
1. Which types of pension plan are affected by the new legislation?
2. What are the eligibility rules under the new pension legislation?
3. What is Primary Protection?
4. What is Enhanced Protection?
5. Should I register my existing pension rights for protection?
Answers
1. Which types of pension plan are affected by the new legislation?
The new legislation affects all existing pension plans as well as any new pension plans that start on or after 6th April 2006.
2. What are the eligibility rules under the new pension legislation?
There are no restrictions on who can join a registered pension scheme. The restrictions are around what contributions receive tax relief. Anyone can join any type and any number of pension schemes at any time.
3. What is Primary Protection?
Primary protection is a transitional arrangement for members of approved pension arrangements whose total pension benefits as at 5 April 2006 exceed the lifetime allowance for the 2006/07 tax year of £1.5m.
By registering pension benefits for primary protection by 5 April 2009 it may prevent a lifetime allowance tax charge of up to 55% applying to any benefits which exceed the lifetime allowance. The level of protection increases in line with the lifetime allowance from the 2006/07 tax year to the year in which benefits are taken.
4. What is Enhanced Protection?
Enhanced protection is a transitional arrangement for members of approved pension arrangements whose total pension benefits as at 5 April 2006 either exceed the lifetime allowance for the 2006/07 tax year of £1.5m or whose benefits are likely to exceed the lifetime allowance applicable when they retire.
By registering pension benefits for enhanced protection by 5 April 2009 it will prevent a lifetime allowance charge of up to 55% applying to any benefits which exceed the lifetime allowance. The key stipulation in registering for enhanced protection is that no further pension savings can be made after 5 April 2006.
5. Should I register my existing pension rights for protection?
If your total pension benefits exceeded or were near to £1.5m on 5 April 2006 then registering for either primary and/or enhanced protection, through Her Majesty's Revenue and Customs (HMRC), may prevent you having to pay additional taxation when you retire.
We recommend that you speak to an adviser as early as possible if you think this could affect you. If you are to rely on enhanced protection, contributions must have stopped after 5 April 2006 other than for limited levels of pension life cover. If you are to register for protection, this must be done by 5 April 2009.