Details of the Schedule
Part 1 “Fixed protection 2014”
3.Paragraph 1(1) provides for transitional protection (“fixed protection 2014”) against the lifetime allowance charge from 6 April 2014 for those who do not have fixed protection under paragraph 14 of Schedule 18 to FA 2011, primary protection or enhanced protection.
4.Paragraph 1(3) provides for fixed protection 2014 to be lost if:
there is a benefit accrual (as defined in paragraph 1(4));
there is an impermissible transfer (as defined in paragraph 1(7));
there is a transfer of sums or assets that is not a permitted transfer (as defined in paragraph 1(8)); or
a new pension arrangement relating to the individual is made otherwise than in permitted circumstances (as defined in paragraph 1(9)).
5.Paragraphs 1(5) and (6) provide how to determine the increase in the value of the individual’s rights under a cash balance or defined benefit arrangement and a hybrid arrangement under which cash balance or defined benefits may be provided.
6.Paragraphs 1(4) and (7) to (10) provide definitions of benefit accrual, impermissible transfers, permitted transfers, permitted circumstances and when a relevant contribution is paid.
7.Paragraph 1(11) provides that increases in an individual’s rights under an arrangement are to be ignored for the purposes of determining whether benefit accrual has occurred if they don’t exceed the relevant percentage in a tax year. This applies for defined benefits and cash balance arrangements as well as hybrid arrangements where the benefits to be provided may be defined benefits or cash balance benefits.
8.Paragraph 1(12) provides that the relevant percentage is an annual rate of increase specified in the scheme rules (or predecessor scheme rules if this is more favourable to the individual) as at 11 December 2012, plus any relevant statutory increase percentage (as defined in paragraph 1(14)) that may apply. Where there isn’t a rate of increase specified in the scheme rules, the relevant percentage is either the annual percentage increase in the consumer prices index (‘CPI’) for September in the previous tax year or, if it is higher, the relevant statutory increase percentage.
9.Paragraph 1(15) provides that paragraph 1(16) applies when the individual’s rights are under a deferred annuity contract and that contract limits increases in rights to annual increases in the retail prices index (‘RPI’).
10.Paragraph 1(16) provides that where paragraph 1(15) applies, the relevant percentage in paragraph 1(12)(b)(i), which allows for CPI increases, is replaced by the annual rate of increase in the value of the individual’s rights during the tax year.
11.Paragraph 1(17) provides further detail on the calculation of the annual increase in RPI for the purposes of paragraph 1(15).
12.Paragraph 1(18) provides that paragraph 1(3) applies in relation to individuals who receive UK tax relief on pension savings in non-UK schemes, as if the non-UK scheme were a registered pension scheme, but that this is subject to paragraph 1(19).
13.Paragraph 1(19) provides that where the individual has an arrangement under a non-UK pension scheme, then the definition of benefit accrual is set out in paragraphs 1(20) and 1(21) for the purposes of paragraph 1(3)(a), and paragraph 1(4) does not apply.
14.Paragraph 1(20) provides that benefit accrual occurs at the end of the tax year where the pension input amount for a tax year is greater than nil.
15.Paragraph 1(21) provides that there is also benefit accrual if an individual takes some or all of their benefits during a tax year and the pension input amount for the period up to the time the benefits were taken is greater than nil.
16.Paragraph 2 provides a power for HMRC to amend paragraph 1 by regulations. These regulations may
add to the cases when paragraph 1 is to apply or cease to apply;
have effect before they are made, but not before 6 April 2014, provided that they do not increase any person’s liability to tax.
17.Paragraph 3 provides a power for HM Revenue & Customs to make regulations specifying how a notice of intention to rely on fixed protection 2014 under paragraph 1 should be given.
18.Paragraph 4(2) and (3) provide that the regulations are to be made by statutory instrument and are to be subject to the negative procedure.
Part 2 Other provision
19.Paragraph 5 introduces a number of consequential amendments to Part 4 of FA 2004 in connection with the reduction to the lifetime allowance.
20.Paragraph 6(2) inserts new subsections 5BA and 5BB into section 218 of FA 2004. Subsection 5BA provides that where an individual has a lifetime allowance enhancement factor under sections 220, 222, 223 or 224 of FA 2004, (which apply a lifetime enhancement factor in respect of pension credits, relevant overseas individuals and transfers from recognised overseas pension schemes), and a benefit crystallisation event occurs between 6 April 2012 and 5 April 2014, then in calculating the individual’s lifetime allowance the lifetime allowance enhancement factor is multiplied by £1,500,000 if this is greater than the standard lifetime allowance.
21.Subsection 5BB provides the order of precedence where an individual has more than one lifetime allowance enhancement factor.
22.Paragraph 6(3) inserts new subsection 5D into section 218 which provides for the reference to the standard lifetime allowance to be replaced by a figure of £1,500,000 where certain lump sum death benefits are paid (a ‘benefit crystallisation event 7’ occurs) on or after 6 April 2014 in respect the death of the individual in either tax year 2012-13 or 2013-14.
23.Paragraph 7(1) inserts new subsection 5A into section 219. Subsection 5A provides that where an individual has primary protection, when calculating the availability of the individual’s lifetime allowance, if a benefit crystallisation event has previously occurred and a further benefit crystallisation event occurs on or after 6 April 2014, then for the purpose of calculating the adjustment of the relevant untaxed amount, reference to the current standard lifetime allowance is replaced by £1,500,000 where this is greater. This ensures that those with primary protection do not benefit from an increase in their available lifetime allowance if the current standard lifetime allowance is less than £1,500,000 when the adjustment is made.
24.Paragraph 8(2) inserts new sub-paragraphs (9) to (11) into paragraph 2 of Schedule 29 to FA 2004. Sub-paragraphs (9) to (11) provide that where an individual has primary protection and/or enhanced protection, and they don’t have any existing lump sum protection, then the maximum pension commencement lump sum they can take will continue to be based on the 2013-14 lifetime allowance of £1,500,000 after the lifetime allowance is reduced to £1,250,000.
25.Paragraph 8(3) provides for the amendments made by paragraph 8(2) to have effect where the individual becomes entitled to the pension commencement lump sum on or after 6 April 2014.
26.Paragraph 8(4) substitutes sub-paragraphs 2 and 3 in paragraph 8 of Schedule 29 to FA 2004 in connection with the calculation of the maximum amount that can be paid as a trivial commutation lump sum where the individual has previously taken some pension benefits. The changes amend the way that any previously taken benefits are adjusted for the purposes of calculating the maximum amount. Prior to this change, the calculation was by reference to any change in the standard lifetime allowance. From 6 April 2014, the calculation is by reference to any change in the trivial commutation limit.
27.Sub-paragraph 2 sets out the formula for the adjustment where the pension benefits were taken before 6 April 2006 and sub-paragraph 3 sets out the formula where the pension benefits were taken on or after 6 April 2006.
28.Paragraph 8(5) provides for the amendments made by paragraph 8(4) to have effect where the nominated date is on or after 6 April 2014.
