Information on pension and tax for high earners
The tax relief applicable to pensions. HM Treasury ‘Restricting pensions tax relief through existing allowances’ The changes aim to restrict tax relief to the most highly paid. The key changes are:
- The Annual Allowance has been set at £40,000 (with effect from 6 April 2016) and £60,000 (with effect from 6 April 2023)
- The Lifetime Allowance is currently £1,073,100 (with effect from 6 April 2020) and will remain at this level until April 2026.
HM Revenue & Customs have produced guidance for individuals on their website: www.hmrc.gov.uk/pensionschemes
Protection
Under the Finance Act 2004, members were able to protect their entitlement to benefits built up before 6 April 2006 from some of the restrictions and penalties that would otherwise apply under the tax regime for pensions. You can find out more about this in the booklet Your pension and tax . Also, members who had a right, as at 5 April 2006, to take benefits before the minimum pension age of 55 will be able to retain that right.
The rules allowed you to register your pension benefits at 5 April 2006 for transitional protection. There were two types and members could register for either or both.
Primary Protection
Primary protection was available only if your pension benefits at 5 April 2006 exceeded £1.5m (equivalent to a premium pension of £75,000 or a classic pension of £65,200). It gives you an individual Lifetime Allowance (LTA) based on the value of your pensions then. Your individual LTA will grow at the same percentage rate as the standard LTA so, if you have kept earning pension after 5 April 2006 you may still end up paying some extra tax. You had to register for primary protection by 5 April 2009.
Please note that under the new arrangements for Pensions tax relief it will not provide protection from the Annual Allowance charge.
Enhanced Protection
Enhanced protection was available to any scheme member. It protected the benefits you had built up before 5 April 2006 but won't necessarily protect you from Lifetime Allowance tax on retirement.
Members of the PCSPS(NI) who have queries about transitional protection or Lifetime Allowance tax should contact us. You can find the number in the Contact Us Section.
For more information on Annual Allowance and Lifetime Allowance, visit www.hmrc.gov.uk/pensionschemes
Find Out More
For further details on Lifetime Allowance and Annual Allowance you can read information booklet Your pension and tax. All booklets and leaflets can be found on the CSP(NI) website. If you would like any further information please contact us