Fixed Protection and how to apply to HMRC
Background
The Lifetime Allowance (LTA) is the maximum capital amount of tax-relievable pension savings that any one individual can accumulate in all pension arrangements. From April 2012, the Standard LTA is reducing from £1.8 million to £1.5 million.
Fixed protection
Unless you have previously applied for either ‘Primary Protection’ or ‘Enhanced Protection’ from the HM Revenue & Customs (“HMRC”) - and therefore you already have an uplifted LTA - you can apply to the HMRC for fixed protection. This will give you a higher personal LTA of £1.8 million post April 2012.
Applying for fixed protection
To apply for HMRC for fixed protection you must complete a prescribed form. This can be found here http://www.hmrc.gov.uk/pensionschemes/apss227.pdf
This form must be returned to HMRC (not via Pensions Trust) before 6 April 2012 otherwise you will lose the opportunity to apply for fixed protection.
Once your application for fixed protection has been accepted by HMRC they will send you a certificate. A copy of your certificate should be sent to Pensions Trust so we can update our records.
Conditions for maintaining fixed protection
To apply for fixed protection you do not need to have built up pension rights of more then £1.5 million. You will, however, be subject to the following restrictions from 6 April 2012:
- you cannot start a new pension arrangement
- you cannot have any benefit accrual
- you will be limited on where you can transfer your pension benefits to in the future
What is benefit accrual?
In Defined Contribution (“DC”) Arrangements
If you are in either the M plan section of the IBM Pension Plan (as a basic, hybrid or enhanced M Member) or any other IBM DC arrangement, benefit accrual on or after 6 April 2012 is any contribution paid by you or on your behalf.
Any contributions paid to an external pension arrangement will also be treated as benefit accrual.
In Defined Benefit (ie IBM IT Solutions Pension Scheme or IBM Pension Plan) (“DB”) Arrangements
If you are either an active Member, a hybrid deferred Member or an enhanced M Member of one of the above plans, benefit accrual on or after 6 April 2012 is an increase in the value of your accrued pension rights in any Pension Input Period (plan year) which exceeds the ‘relevant percentage’. The relevant percentage will be based on the increase in the Consumer Prices Index (CPI) measured from September to September. You do not have to be accruing pensionable service to have DB benefit accrual.
Pension Suspension
HMRC have advised Pensions Trust that ‘pension suspension’ will count as benefit accrual after 6 April 2012 because you retain the benefit of a spouse / dependant’s pension based on projected service in the event of your death-in-service.
What happens to my IBM Pension Plan / I Plan benefits if I want to apply for fixed protection
If you wish to maintain fixed protection you will need to opt-out of your plan. This means your benefits will be deferred and no further contributions will be made towards them. The value of any DB benefits will, broadly, increase in line with the CPI, and the value of any DC benefits will fluctuate with market conditions.
By opting-out of scheme membership you will lose any spouse / dependant’s pensions which are based upon your (future) projected membership of the pension plan in the event of your death-in-service. Your spouse’s benefit will be based only on membership of the plans already accrued.
Lump sum death-in-service benefits are not effected by opting-out.
How to opt-out
You can opt-out either by contacting Pensions Trust or through the annual You* enrolment (commencing February 2012).
Losing fixed Protection
If you incur any future benefit accrual you will have to advise HMRC and fixed protection will be lost. In this event, you must inform Pensions Trust. You will not have the opportunity to re-apply and will be subject to the standard LTA of £1.5 million.
Possible future changes
If the standard LTA rises to above £1.8million, your fixed protection will end and you will default to the higher standard LTA as fixed protection will cease to be relevant. The Government however has not announced any intention of increasing the LTA in the future.
Communications from Pensions Trust
In January 2012, Pensions Trust will be writing to members of the IBM IT Solutions Pension Scheme and / or IBM Pension Plan to provide them with details of their pension savings within these schemes. This information will help members to decide whether they wish to apply for fixed protection or not.
Where can I get advice?
Before making any decision to apply for fixed protection, you may wish to seek independent financial advice. You can find a list of Independent Financial Advisors in your area at www.unbiased.co.uk.
IBM Pensions Trust does not recommend any sites or companies listed on the results pages provided by www.unbiased.co.uk and cannot be held responsible for the content of any external sites.
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Last Updated: 30/09/2011
