Time running out to claim protection from the lifetime allowance

With less than 3 months left to claim protection from the lifetime allowance,

Her Majesty's Revenue and Customs has made changes to the claim form (http://www.hmrc.gov.uk/pensionschemes/apss200.pdf) that applicants need to fill in.

These changes should reduce the errors made in claiming protection.

HMRC have also published helpful online guidance about the claims process (http://www.hmrc.gov.uk/pensionschemes/life-allow-pn.htm#9).

HMRC have also given some guidance on common errors in the completion of the form: Boxes on the form which require completion are left blank, resulting in rejection - they say 'nil' or 'N/A' should be entered when appropriate for the avoidance of doubt.

Only one tick box is completed in the signed declaration at part 5 - both should be ticked.

Conflicting information is given on the form when an individual is claiming both protections creating an 'obvious error', eg question 3.6 (for enhanced protection) and 4.4 (for primary protection) request the same information, and 3.7 should equal the sum of 4.1a and 4.1b.

Note that from today, the new APSS200 form should be used.

All those that have successfully claimed protection need not claim again, but those who have had their claim rejected - for example because they made a mistake on the form - should use the new form.

John Lawson, Head of Pensions Policy at Standard Life said: "With less than 3 months to claim protection from the lifetime allowance, the change to the claim form provides a timely reminder to those who have not yet claimed protection.

Those failing to claim may live to regret doing so as the lifetime allowance charge will run into tens or even hundreds of thousands of pounds for each person that breaches it without protection.

NOTES: Enhanced protection - can protect whole fund from lifetime allowance charge (55%).

Fund can be any amount at A-day (even under ?1.5million).

BUT, can NOT make further contributions on or after 6th April 2006 - if people have already paid contributions into their pension after this date (or accrued further 60ths or 80ths in their defined benefit pension), they can't claim enhanced protection.

Primary protection - can protect fund in line with increases in the lifetime allowance.

Fund must be above ?1.5 million on A-Day.

But can pay in contributions or accrue new DB benefits after A-Day.

Example - John has a fund of ?2 million on A-Day (6th April 2006).

He pays in more contributions and his fund reaches ?3 million when he retires in 2013 when the lifetime allowance is ?1.8 million.

If he doesn't claim primary protection, he is taxed at 55% on ?3m minus ?1.8 million i.e 55% of ?1.2 million or ?660,000 in tax.

However, if he claims primary protection, his A-Day fund will be protected up to ?2.4million (1.8/1.5 times ?2 million) meaning that he only pays 55% tax on ?600,000 of his fund (tax paid is ?330,000).

In 2003, the National Audit Office found that 10,000 people had pension funds of over ?1.4 million and another 5,000 had values above ?1 million but below ?1.4 million.

The stock market indices were below current levels when the NAO made its estimates.

With reasonable fund growth it is likely that as many as 100,000 people retiring over the next 20 years will breach the lifetime allowance, especially considering that it will be frozen from 2010 until at least 2016 at an amount of ?1.8 million (in the current tax year 2008/09 the lifetime allowance is ?1.65 million and it was ?1.5 million when introduced in 2006/07).

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