Fixed protection 2014 protects an individual’s LTA at the current level of £1.5m.
Individual protection is not expected to be available to those with primary or enhanced protection, and people will need a fund of at least £1.25m to register. It gives the ability to protect an LTA of up to £1.5m, depending on the value of pension schemes on 5 April 2014. The big difference is that ongoing contributions and extra accrual are allowed.
While fixed protection 2014 must be claimed by 5 April 2014, individual protection will only be available from the date of royal assent of the relevant finance bill, which is next summer.
For many people it would make sense to apply for both fixed protection 2014 and individual protection,. This would give them an LTA of:
• £1.5m if no contributions are made and no accrual occurs after 5 April 2014, or
• Their total benefit value (between £1.25m and a £1.5m cap) as at 5 April 2014 with contributions/accrual still possible.
In this article I have not had a chance to consider scheme-specific tax-free cash protection to protect entitlements of greater than 25 per cent pension commencement lump-sum, or the opportunity to use protection to protect entitlements to lump-sums of more than 25 per cent of the LTA – all of which are important and need to be considered.
All forms of protection apply not only to funds being accumulated, but also to funds in payment, and it is important to ensure that someone who has partially crystallised benefits knows what percentage of LTA has been used and therefore what remains. This can be affected by the level of LTA that has been protected.
All in all, for anyone who already holds, or will register for, any of the protection regimes, some complicated calculations may need to be done, including some reliance on calculations to show how much LTA has already been used.
I also think there are practical issues of having such a regime that has introduced different component parts during a number of years. For example, in a few cases I have assisted advisers who were recently appointed to advise clients, and my first question to them has been: Does the client have protection? The answer has been unsure, with certificates not found.
It is important that clients understand what they are doing and the implications of their actions.
One story told to me (which may or may not be true) was of a client who had a fund of some £4m at A-day. He was rightly advised to apply for enhanced protection, which he duly did, ceasing contributions accordingly. Thinking that he no longer needed pensions advice, he also ceased his adviser relationship. A new adviser was appointed a couple of years later only to find that the client was now paying £100 a month into a personal pension – a move that had invalidated his enhanced protection.
