Focus 90 – Individual Protection and Pension Debits

In June 2013 a consultation document was issued by HM Revenue & Customs regarding the implementation of Individual Protection 2014 (IP14) in association with the reduction in the lifetime allowance on 6 April 2014. On the 10 December HM Revenue & Customs reported back on the outcome of the consultation which closed at the beginning of September 2013.

There were 34 responses to the consultation with many only responding to questions relevant to them. The outcome was a number of minor changes to the way in which IP14 is due to operate.

Other protections in force

It was proposed that those with Enhanced Protection would be unable to apply for IP14, the reasons given were mainly based around administrative burden. This was not deemed to be an overriding issue for most and it was decided that it was in the interest of the individuals to allow them to hold both types of protection at once. This is a real benefit to those concerned about losing Enhanced Protection and reverting to a Lifetime Allowance of £1.25M from the unlimited benefits they would have had. If they hold IP14 as well they would likely have a safety net at £1.5M.

In addition, it was confirmed that individuals would be able to apply for IP14 even if they already held Fixed Protection 2012 or 2014. However, those with Primary Protection would not be able to apply and it is not possible to revoke Primary Protection in order to apply, although this would have been an unlikely choice anyway.

Pension debits

For those who, in the future, receive a pension debit there was a question about how it would affect their entitlement to IP14. For Primary Protection there is no revaluation factor used to work out the debit on the 2006 value, which was seen to be unfair. So for IP14, there is a fixed revaluation basis to be used to calculate the value of the debit in 2014, whenever it happens. This has been determined to be 5% per full tax year passed. Although an arbitrary figure this is a welcome change.

Application dates

It has been confirmed that the application dates will be from the issue of the forms to 5 April 2017. The forms are not going to be available until Royal Assent of the Finance Bill 2014, but there is already updated draft legislation and guidance available for those that want to be prepared.

Other issues

Other proposals were confirmed as consulted on, including

  • the calculation factors used to value pre A-day benefits in payment
  • the basis of the individual lifetime allowance being a monetary figure
  • the ability to apply the usual enhancement factors to the individual lifetime allowance figure

What next

There is still an opportunity to comment on the draft legislation as it stands until 4 February 2014. A full version of the consultation document and response can be found here.