Annual Allowance and Lifetime Allowance – from April 2016
From 6 April, the Annual Allowance (AA) and Lifetime Allowance (LTA) were reduced again and consequently more pension scheme members may attract a tax charge on retirement. If you earn more than £100,000 per year and/or have long service in the scheme, or you have been made aware in the past that you might be affected by the AA, you should take further advice on your tax position. Your annual benefit statement from the TPS tells you how much of your LTA your current benefits in the Teachers' Pension Scheme currently represent, but all other pension benefits must be taken into account. ATL cannot directly give tax advice or personal financial advice.
ATL's chosen provider of professional financial advice, Lighthouse Financial Advice, can advise on this topic and can be contacted here.
Any adviser will need to see a statement of benefits so you should ensure you are registered with My Pension Online so you can access a benefit statement.
Teachers' Pensions also have a lot of information on the AA and LTA.
HMRC produces pension scheme newsletters on a regular basis and ATL wishes to draw your attention to Newsletters 73, from which the below extract is taken, and 74, 75 and 76, regarding allowances and protections. Members who are concerned about AA or LTA or who have been informed they are close to limits, may find these useful to read and share with their financial advisers. They can be found here.
A note from HMRC
There will be a period between the new protection regimes becoming available in April 2016 and the introduction of the new online self-service in July 2016. For this period we (HMRC) will introduce an interim process for pension scheme members who want to take benefits before the introduction of the new online service. Scheme members will be able to write to HMRC between April 2016 and July 2016 and we will check the details of their protection and respond to the member in writing. This can then be presented to the scheme administrator in advance of the full application being made after July 2016.
Further details about the available protection are given in the Newsletters 74 and 75. As stated in the bulletins, scheme members are not able to apply for FP2016 or IP2016 before 6 April 2016. These Newsletters give reference to an interim process for obtaining a temporary number for any retirements before 31 July 2016. Newsletter 76 provides sample letters that can be used for anyone claiming FP16 and IP16 in APPENDIX 1 and APPENDIX 2. The newsletter also specifically refers to how those crystallising benefits soon after 6 April 2016, who will not have their temporary HMRC reference number, will be able to confirm protection. This gives the following advice in the bullet points below:
Taking benefits soon after 6 April 2016
We are aware that some members affected by the reduction in lifetime allowance will want to or need to retire on or immediately after 6 April 2016 and that these members may not have received their temporary reference number, confirming protection, from HMRC. Members in this situation may wish to:
- postpone taking their benefits until they have received a temporary reference number from HMRC or
- take benefits up to the standard lifetime allowance and defer taking their remaining benefits until they have received a temporary reference number from HMRC.
Alternatively scheme administrators can test members benefits against the standard lifetime allowance of £1m, pay the tax charge on the accounting for tax (AFT) return and the once the temporary reference number is obtained, re-calculate and then submit an amended AFT return to receive a repayment. For the purposes of person receiving Individual Protection 2016, the employer will need to get the service and salary notified to Teachers' Pensions up to 5 April 2016 or the date of leaving if earlier, so that a calculation of benefits as at 5 April 2016 can be undertaken.
From August 2016
Three modes of protection are in place - Individual Protection 2014 (IP14), Individual Protection 2016 (IP16) and Fixed Protection 2016 (FP16) The online application for these system is live despite the relevant legislation to introduce IP16 and FP16 retrospectively from 6 April 2016 not yet having received Royal Assent.
If you had already been given a temporary reference number to draw benefits before the online system went live, your protection will still be valid. If you wish to crystallise further benefits in the future, you should then use the online system for taking benefits from now on, to obtain a permanent reference number. This will also give you your own personal tax account and you can apply for a permanent reference number even if you already have a temporary one.