Guidance

Pension schemes newsletter 77 - March 2016

Updated 6 April 2016

1. Budget 2016

At Budget 2016 on 16 March 2016, the government announced a number of measures of interest to the pensions and savings industry.

New measures

Pension Flexibility

A number of minor changes are being made to the pension tax rules to ensure that they operate as intended following the introduction of pension flexibility in April 2015. The changes will:

• remove the requirement that a serious ill-health lump sum can only be paid from an arrangement that has never been accessed
• replace the 45% tax charge on serious ill-health lump sums paid to individuals who have reached age 75 with tax at the individual’s marginal rate
• enable dependants with a drawdown or flexi-access drawdown pension who would currently have to use all of this fund before age 23 or pay tax charges of up to 70% on any lump sum payment, to continue to access their funds as they wish after their 23rd birthday
• remove the rule on paying a charity lump sum death benefit out of drawdown pension funds and flexi-access drawdown funds where the member dies under the age of 75 because the equivalent tax-free payment may be made as another type of lump sum death benefit
• enable money purchase pensions in payment to be paid as a trivial commutation lump sum
• enable the full amount of dependants benefits to be paid as authorised payments where there are insufficient funds in a cash balance arrangement when the member dies

These measures will have effect on the day after the date of Royal Assent to Finance Bill 2016.

Advice

Legislation will also introduce a new Income Tax exemption and a corresponding National Insurance disregard for financial advice on pensions for the first £500 of the cost of provision, where the advice is arranged by the employer. This will come into effect from 6 April 2017.

The existing tax relief for employer-provided pensions advice, which has been in force since 2004, will be repealed as the new tax relief extends to tax advice on pensions, and the existing provision will no longer be needed.

The government will also consult over summer 2016 on introducing a Pensions Advice Allowance. This will allow people to withdraw £500 tax free, before the age of 55, from their defined contribution pension to redeem against the cost of financial advice.

Existing measures

The Budget also confirmed that the changes that have been previously announced would proceed and will be included in Finance Bill 2016.

Lifetime allowance

Legislation will be introduced to reduce the Lifetime allowance (LTA) to £1 million from 6 April 2016 and provide 2 new transitional protections, fixed protection 2016 and individual protection 2016. The transitional protections are similar to fixed protection 2014 and individual protection 2014. A new digital service is being provided for individuals to apply for the protections from July 2016. There is no formal deadline for applying for protection, but if individuals intend to rely on a protected LTA they will need to have applied and obtained a reference number from HM Revenue and Customs (HMRC) before they start taking any benefits. Pension Schemes Newsletter 76 sets out the processes for individuals who want to take their benefits before the digital service is available in July 2016.

Dependants’ scheme pensions

Legislation will be introduced to simplify the test that takes place when a dependants’ scheme pension is payable following the death of an individual aged 75 or over who was entitled to a scheme pension.

Bridging pensions

Legislation will be introduced to align pensions tax legislation with the new state pension in DWP legislation in respect of bridging pensions.

Further information on the above announcements can be found in the Overview of Tax Legislation and Rates 2016.

Other announcements

Pensions tax consultation

The government has published a response to the consultation on ‘Strengthening the incentive to save: a consultation on pensions tax relief’.

Lifetime Individual Savings Account (Lifetime ISA)

Legislation will be introduced to provide a Lifetime ISA. The Lifetime ISA will be available from April 2017 for adults under the age of 40. They will be able to contribute up to £4,000 per year, and receive a 25% bonus from the government. Funds from the Lifetime ISA, including the government bonus, can be used to buy a first home at any time from 12 months after the account opening, and can be withdrawn from age 60. Lifetime ISA - explained provides further information.

Unfunded Employer Financed Retirement Benefit Schemes (unfunded EFRBS)

Following the informal consultation announced at Autumn Statement the government will keep this issue under review.

If you have any questions about the changes announced in Budget 2016 please email pensions.policy@hmrc.gsi.gov.uk or Telephone 03000 512336.

2. Lifetime allowance reduction

a. Individual protection 2014 (IP2014)

In Pension Schemes Newsletter 73 we asked you to remind your members that they can still apply for Individual Protection 2014 and they can do this by using the online form that we provide.

Although the online system for applying for Individual Protection 2016 (IP2016) or Fixed Protection 2016 (FP2016) goes live in July 2016, members wanting to apply for IP2014 will still have to use the current online form.

b. Members with existing protection from lifetime allowance

Members with pension savings that are already protected from the lifetime allowance can use the information below to help them decide whether they can apply for Fixed Protection 2016 or Individual Protection 2016.

Can I apply for Fixed Protection 2016 (FP2016) ?

I currently have:

Primary Protection (PP) - No. FP2016 cannot be held with PP. PP cannot be given up but can be lost due to a pension debit. If you have lost PP please notify us.

Enhanced Protection (EP) - No. FP2016 cannot be held with EP. If you have lost EP please notify us.

Fixed Protection (FP) - No. FP2016 cannot be held with FP. If you have lost FP please notify us.

Fixed Protection 2014 (FP2014) - No. FP2016 cannot be held with FP2014. If you have lost FP2014 please notify us.

Individual Protection 2014 (IP2014) - Yes. If you have IP2014 then FP2016 will remain dormant unless you lose IP2014. IP2014 cannot be given up but can be lost due to a pension debit. If you have lost IP2014 please notify us.

Fixed Protection 2016 (FP2016) - Not applicable

Individual Protection 2016 (IP2016) - Yes. You can apply for FP2016. Your IP2016 will remain dormant unless you lose FP2016.

Can I apply for Individual Protection 2016 (IP2016) ?

I currently have:

Primary Protection (PP) - No. IP16 cannot be held with PP. PP cannot be given up but can be lost due to a pension debit. If you have lost PP please notify us. .

Enhanced Protection (EP) - Yes. If you have EP then IP2016 will remain dormant unless you lose EP.

Fixed Protection (FP) - Yes. If you have FP then IP2016 will remain dormant unless you lose FP.

Fixed Protection 2014 (FP2014) - Yes. If you have FP2014 then IP2016 will remain dormant unless you lose FP2014.

Individual Protection 2014 (IP2014) - No. IP2016 cannot be held with IP2014. IP2014 cannot be given up but can be lost due to a pension debit. If you have lost IP2014 please notify us.

Fixed Protection 2016 (FP2016) - Yes. If you have FP2016 then IP2016 will remain dormant unless you lose FP2016.

Individual Protection 2016 (IP2016) - Not applicable.

We have also provided additional information for pension scheme members on Individual Protection 2016 (Appendix 1) and Fixed Protection 2016 (Appendix 2).

In addition, we have updated the pro forma letters (Appendix 3 and Appendix 4) to include the designatory details you will need to provide when contacting us for interim protection.

c. The 2016 to 2017 Event Report

HMRC have been reviewing the Event Report and as a result this hasn’t been updated to include the new lifetime allowance protection regimes. This means from 6 April 2016 scheme administrators won’t be able to use the 2016 to 2017 Event Report to report certificate numbers of members relying on FP2016 or IP2016.

The 2016 to 2017 Event Report is not due to be submitted until the end of January 2018 however if you need to submit the 2016 to 2017 Event Report with details of FP2016 or IP2016 before we update it, please email: pensions.businessdelivery@hmrc.gsi.gov.uk and put ‘Lifetime Allowance 2016-2017 Event Report’ in the subject line of your email and we will confirm how you need to provide this information. We will provide a newsletter update in due course.

3. Pension flexibility

a. Guidance on reporting pension flexibility payments using RTI

In February 2016 we published our updated CWG2 guidance for 2016 to 2017 on how to operate PAYE correctly. This includes guidance for pension scheme administrators on how to operate PAYE on pension flexibility payments and pension lump sum death benefit payments, the reporting of which is mandatory from 6 April 2016.

b. New tax repayment claim forms for pension lump sum death benefits payments

From 6 April 2016 when a scheme administrator pays one of the following lump sum death benefits to an individual (a qualifying person) and it is taxable, instead of deducting the special lump sum death benefit charge at 45% they should deduct income tax using an emergency code:

• defined benefits lump sum death benefit
• uncrystallised funds lump sum death benefit
• drawdown pension fund lump sum death benefit
• flexi-access drawdown fund lump sum death benefit
• pension protection lump sum death benefit
• annuity protection lump sum death benefit

Three new forms will be available from 6 April 2016 for individuals to claim back overpayments of tax on these lump sum death benefits taxed using an emergency code.

P50Z(DB) - individuals should only use the P50Z(DB) form if:

• they’ve taken a pension death benefit lump sum that uses up their pension pot, and
• they have no other income

P53Z(DB) – individuals should only use the P53Z(DB) form if:

• they’ve taken a pension death benefit lump sum that uses up their pension pot, and
• they have other taxable income in this tax year

P55(DB) – individuals should only use the P55(DB) form if:

• they’ve taken a pension flexibility death benefit payment that does not use up all of that fund
• they will not be taking regular payments, and
• the pension body is unable to make any tax refund

If one of the lump sum death benefits listed above is taxable and the scheme administrator pays it to a non-qualifying person such as a company, a trust or the member’s estate when they die, the scheme administrator must continue to deduct tax at 45% and report it to HMRC on the Accounting for Tax return. This tax is the liability of the scheme administrator.

c. Taxable pension death benefit lump sums paid to a trust

Information scheme administrators provide for trustees

If, from 6 April 2016, one of the lump sum death benefits listed above is taxable and the scheme administrator pays it to a trust, the scheme administrator must provide the following information to the trustees:

• the amount of the lump sum death benefit before you deducted tax
• the amount of the tax you deducted

Scheme administrators have to provide this information within 30 days of paying the lump sum death benefit to the trustees. The trustees will need to pass on the information to the individual beneficiaries receiving a trust payment funded by the lump sum death benefit the trust received from the pension scheme.

Information trustees must provide to individual trust beneficiaries

When the trustees receive a taxable lump sum death benefit from a scheme administrator, and make a trust payment which is funded by all or part of that lump sum to one or more beneficiaries of the trust, they have to pass on the information the scheme administrator provided about the amount of the lump sum death benefit before tax and the amount of tax the scheme administrator deducted. If there is more than one beneficiary or the amount paid to the beneficiary is less than the amount of the taxable lump sum death benefit the trust received from the registered pension scheme, they must tell the beneficiary only the proportion of the amount of lump sum and tax paid that relates to the amount the individual receives. They must provide this information within 30 days of making the payment to the beneficiary.

Claim by trust beneficiary

An individual who usually completes a Self Assessment tax return and receives a trust payment funded out of a taxable lump sum death benefit will have to include in their return the amount reported to them by the trustees and not the amount they receive. The individual will be able to set off the tax paid on the lump sum death benefit by the scheme administrator (or a proportion of it , where the trust payment is funded by only part of the lump sum death benefit the trustees received) against the tax due on this trust payment. This may lead to a refund of tax.

If the individual doesn’t normally complete a Self Assessment tax return, they can provide HMRC with details of any other income they expect to get during the tax year, using the most accurate estimates possible if final figures are not known, to claim a refund. They can use form R40.

4. Secondary annuities market

On 15 December 2015, the government responded to the consultation in to the introduction of a secondary annuity market providing further details on how the new secondary annuity market will work. As confirmed in the response, the government will consult on the detail of the tax framework in the spring of 2016.

5. Annual allowance

a. Tapered annual allowance – information regulations

In January 2016 we published for comment draft regulations on changes to information requirements for pension scheme administrators following the introduction of the tapered annual allowance.

These draft regulations included a requirement for occupational pension schemes to provide a pension savings statement to members whose pensionable earnings exceeded £110,000 in the tax year. As respondents said that this requirement was impractical and would create unnecessary burdens for most schemes as they do not already hold this information, this requirement has been removed. Members will still be able to request a statement from their scheme if they want one.

In response to comments received, the circumstances in which schemes must provide a pension savings statement to members in relation to the 2015 to 2016 tax year has also changed. Schemes must provide a statement if either the member’s pension input amounts for 2015 to 2016 as a whole exceed £80,000, or the member’s pension input amounts for the post-alignment tax year exceed £40,000.

The Registered Pension Schemes (Provision of Information) (Amendment) Regulations 2016 (SI 2016/308) have now been made and laid and have been published on the www.legislation.gov.uk website.

b. Tapered annual allowance – guidance

We have updated the Pensions Tax Manual to include guidance on the tapered annual allowance, pension input period alignment and the transitional provisions for 2015 to 2016.

We have also produced some member messages in Appendix 5 to help scheme members understand the changes to the annual allowance rules and whether they are affected.

c. Annual allowance tools update

We are currently developing a new single calculator to incorporate all the recent changes to the annual allowance so that pension scheme members can use it for tax years 2015 to 2016 onwards. We hope this will be available for use by Summer 2016. We will be looking for external volunteers to help test and provide feedback on the new calculator and we will provide details of the testing process in a later newsletter.

Your members can still find the existing tools and guidance for years up to 2014 to 2015 on GOV.UK.

6. Relief at source - APSS105 and APSS106 forms

We have made some small changes to the APSS105 and APSS106 forms for scheme administrators to claim tax relief on member contributions. These changes will feature on the forms from the 6 April 2016.

You can find these forms and more information on relief at source repayments on GOV.UK at Pension administrators: reclaim tax relief using relief at source.

7. Appendix 1 – Fixed Protection 2016 (FP2016) information for scheme members

Introduction

If you have Fixed Protection 2016 (FP2016) you will have a lifetime allowance (LTA) of £1.25 million. This means you can take pension benefits with a value of up to £1.25 million without incurring an LTA charge. If you lose FP2016 then you will only be able to take benefits up to the value of the standard LTA without incurring an LTA charge.

From 6 April 2016 the standard LTA is £1 million (the government may change the level at a later date). This is the date from which your FP2016 takes effect.

When are benefits tested against the LTA?

Benefits are tested against the LTA whenever a ‘benefit crystallisation event’ (BCE) occurs. Most, but not all, BCEs occur when your pension benefits (including certain lump sum benefits paid on your death) are taken or when you reach age 75 without having taken benefits. Whenever a BCE happens you should give your FP2016 reference number to your scheme administrator. This will mean your benefits are tested against your protected LTA.

How do I know what my pension benefits are worth?

The value of your pension that is tested against your LTA will depend on the type of benefits that you take. The most common examples of BCEs are as follows:

• if you take a scheme pension (normally a final salary pension) this uses up an amount equal to your initial annual rate of pension multiplied by 20 - so if your pension’s starting rate is £30,000 you will use up £600,000 of your LTA, any pension payable to a dependant on your death in retirement will not be a BCE and will therefore not use up any LTA
• if you take a pension commencement lump sum (the tax free lump sum taken when you take your pension) and certain lump sum death benefits paid if you die before reaching age 75, then this uses up the amount of the lump sum paid
• if you take a lifetime annuity this uses up an amount of LTA equal to the cost of the purchase of the annuity
• if you take a drawdown pension this uses up an amount of LTA equal to the aggregate of the amount of cash and the market value of any assets which you have designated as available to provide the drawdown pension
• if you take an an uncrystallised funds pension lump sum (UFPLS) this uses up an amount of LTA equal to the amount of the lump sum before tax
• if you reach age 75 and have still not taken some or all of your benefits from your scheme you will use up part of your LTA - the amount will depend on the type of pension arrangement you have in your scheme, your scheme administrator can advise you about the amount of the LTA used up

In all cases, your scheme administrator must give you a certificate showing how much LTA has been used up.

For more information on BCEs please see the guidance in PTM088000 of the Pensions Tax Manual.

How can I lose FP2016?

You will lose FP2016 if, on or after 6 April 2016, any of the following happens:

• you have benefit accrual
• you have a new pension arrangement (including being auto-enrolled)
• you make a transfer that is not a permitted transfer from an existing arrangement
• you receive an impermissible transfer into an existing arrangement

Benefit accrual

You will lose FP2016 if you have benefit accrual which, very broadly, occurs if:

• you pay any contribution into a money purchase arrangement (for example a personal pension or a retirement annuity contract) at any time after 5 April 2016
• your benefits are in a defined benefits arrangement (for example a final salary arrangement) and your prospective pension rights increase in any tax year by an amount that exceeds what is called the ‘relevant percentage’

Your pension rights are prospective rights if you have not yet taken the pension concerned. If you remain in active membership of a defined benefits arrangement, the relevant percentage is likely to be the percentage increase in the Consumer Price Index (CPI) for the year ending with the month of September prior to the tax year in which the increase takes place.

For example, if the increase takes place in tax year 2016 to 2017, the relevant percentage is the percentage increase in the CPI for the year ending with the month of September 2015. During that year the CPI fell by 0.1% so any increase in 2016 to 2017 will cause FP2016 to be lost.

If you become a deferred member of your pension scheme the relevant percentage is any annual rate of pension increase specified in the scheme’s rules on 9 December 2015 together with certain increases imposed by any Act of Parliament. If there is no rate specified in the scheme rules, the relevant percentage is the higher of any increase imposed by any Act of Parliament and the increase in the CPI described above.

New pension arrangement

You will lose FP2016 if you have set up (or had set up for you) a new arrangement in the same or another registered pension scheme unless this is done in what are called ‘permitted circumstances’.

Any transfer between money purchase arrangements (commonly a personal pension scheme or a retirement annuity contract) are made in permitted circumstances. Transfers to defined benefits (final salary) arrangements are also permitted in limited circumstances when you have no say in the transfer. This could be because your current scheme is wound up and your benefits are transferred to a new scheme of your employer in respect of the same employment.

If, after 5 April 2016, your employer automatically enrols you into their pension scheme either because they are required to do so under Pensions Act 2008 or because they regard it as being to your benefit, this will lead to a new arrangement being set up. This means that FP2016 is lost unless the automatic enrolment is under the Pensions Act 2008 and you exercise your right to opt out of pensions saving within the one-month window permitted under the Act. If your employer has their own employee pension arrangements rather than under the Pensions Act 2008 you should ask them not to enrol you at all.

Transfers that are not permitted transfers or are impermissible transfers

You will lose FP2016 if such a transfer occurs. Permitted transfers and impermissible transfers are very precisely set out by the pensions tax rules. More information will be available on GOV.UK from 6 April 2016.

What is the tax position if I lose FP2016?

Once FP2016 has been lost, if you have any further BCEs these are tested against the standard LTA applicable at the time of the BCE. Once you have exceeded the standard LTA you will be liable for an LTA tax charge on the excess. But any BCEs that occurred before you lost your protection are not revisited.

For example, you had BCEs using up a total of £1.2 million LTA when a standard LTA was £1 million but your FP2016 LTA (£1.25 million) was still valid. As you have not exceeded your FP2016 LTA, there is no LTA charge on the excess (£200,000) over the £1 million standard LTA. An event then occurs which means you lose FP2016 at a time when you still had to take benefits with a value of £100,000.

You take those benefits when the standard LTA is £1 million. As your BCEs of £1.2m used up 96% of your protected £1.25m LTA, at the point you lost FP2016 you still have 4% LTA available. As 4% of the standard £1m LTA is £40,000 only the remaining £60,000 is subject to LTA charge. But the £200,000 of benefits above the standard LTA which you took while your FP2016 was valid does not become retrospectively liable to an LTA charge.

If the excess £60,000 over the LTA is taken in pension form then the LTA charge is at a rate of 25% and the tax due is £15,000. The pension provided with the remaining £45,000 will then be taxed as pension income. If the excess £60,000 over the LTA is taken as a LTA excess lump sum it will be taxed at 55%. The tax due is £33,000 leaving you with a lump sum of £27,000.

Normally your scheme administrator will deduct this tax and then pay it over to us. If you have a final salary pension your scheme administrator may instead pay the tax on your behalf and recover it from you by reducing your pension.

Important Note: If you do lose FP2016 you must tell HMRC that FP2016 no longer applies to you. You have to do this within 90 days of losing your protection. If you don’t do so then you will be liable for penalties of up to £300 for failure to notify and daily penalties of up to £60 per day after the initial penalty has been raised.

8. Appendix 2 – Individual Protection 2016 (IP2016) information for scheme members

Introduction

If you have individual protection 2016 (IP2016) you will have a protected LTA of between £1 million and £1.25 million. The exact amount of your protected LTA is based on the value of your pension savings at 5 April 2016.

Having IP2016 means you can take pension benefits up to the level of your protected LTA – shown on your notification from HMRC, without incurring an LTA charge. If you lose IP2016, your LTA will revert to the standard LTA.

From 6 April 2016 the standard LTA is £1 million (the government may change the level at a later date). This is the date from which your IP2016 takes effect.

When benefits are tested against the LTA

Benefits are tested against the LTA whenever a BCE happens. Most, but not all, BCEs happen when you:

• take your pension benefits (including certain lump sum benefits paid on your death)
• reach age 75 without having taken benefits

Whenever a BCE happens you should give your IP2016 reference number to your scheme administrator. This will mean your benefits are tested against your protected LTA.

How do I know what my pension benefits are worth?

The value of your pension that is tested against your LTA will depend on the type of benefits that you take. The most common examples of BCEs are as follows:

You take a scheme pension

This uses up an amount of LTA equal to your initial annual rate of pension multiplied by 20. So, if your pension’s starting rate is £30,000 you will use up £600,000 of your LTA. Any pension payable to a dependant on your death in retirement will not be a BCE and will therefore not use up any LTA.

You take a lifetime annuity

This uses up an amount of LTA equal to the cost of the purchase of the annuity.

You take a drawdown pension

This uses up an amount of LTA equal to the total of the amount of cash and the market value of any assets which you have designated to provide the drawdown pension.

You take any of the above forms of pension and you also take a tax-free lump sum (called a pension commencement lump sum)

This uses up an amount of LTA equal to the amount of the lump sum paid.

You take an uncrystallised funds pension lump sum (UFPLS)

This uses up an amount of LTA equal to the amount of the lump sum before tax.

You die before reaching age 75 and certain tax free lump sum death benefits are paid

This uses up an amount of LTA equal to the amount of the lump sum paid.

You reach age 75 and have still not taken some or all of your benefits from your scheme

This will use up part of your LTA. The amount of LTA used up will depend on the type of pension arrangement you have in your scheme. Your scheme administrator can advise you about the amount of the LTA used up.

In all cases, your scheme administrator must give you a certificate showing the percentage of your LTA used up by your BCE(s). You can find more information about BCEs in PTM088100 of the Pensions Tax Manual.

Amendments to IP2016 as a result of a pensions sharing order following a divorce

If you receive a discharge notice for a pension debits as a result of a pension sharing order on or after 6 April 2016, you must tell us within 60 days, so that we can reduce your relevant amount. This is the amount that you declared as the value of your pension savings on 5 April 2016.

If a pension debit occurs on or after 6 April 2017, we will reduce the amount of the reduction by 5% for each full tax year between the time of your pension debit and 5 April 2016.

If a pension debit reduces your personalised LTA to £1 million or less, you will lose IP2016 from the effective date of the pension sharing order and you will go back to the standard LTA. If after the reduction for the pension debit your personalised LTA is still between £1 million and £1.25 million, you will retain IP2016 but at the lower protected LTA from the effective date of the pension sharing order.

Example 1

You have pension benefits at 5 April 2016 of £1.3 million. Your IP2016 protected LTA is £1.25 million. You report a pension debit of £200,000 on 1 January 2017. You will deduct this from your 5 April 2016 benefits of your £1.3 million, reducing your protected LTA to £1.1 million.

Example 2

You have pension benefits at 5 April 2016 of £1.2 million. Your IP2016 protected LTA is £1.2 million. You report a pension debit of £20,000 on 1 January 2020. As 3 full tax years have passed since 5 April 2016 we reduced the debit by 15% to £17,000. We will deduct this from your 5 April 2016 benefits of £1.2 million, reducing your protected LTA to £1.183 million.

Example 3

You have pension benefits at 5 April 2016 of £1.3 million. Your IP2016 protected LTA is £1.25 million. You report a pension debit of £350,000 on 1 January 2017. You will deduct this from your 5 April 2016 benefits of your £1.3 million, reducing your relevant amount to £950,000 which is less than the standard LTA at 6 April 2016 of £1 million. This means you lose IP2016.

The tax position if you lose IP2016

You can only lose IP2016 if:

• a pension debit reduces your protected LTA to below the level of the standard LTA
• the standard LTA increases to a level greater than your protected LTA

If you lose IP2016, your LTA will revert to the standard LTA and any further BCEs you have will be tested against this. If the value of your BCEs exceeds the standard LTA you will be liable for an LTA tax charge on the excess. We will not revisit any BCEs that occurred before you lost your protection or re-test them against the standard LTA.

9. Appendix 3 - FP2016 interim application process

I wish to apply for Fixed Protection 2016 using the interim application process.

I confirm that I will be taking benefits before the new online system is available in July 2016 and I know that to ensure that my pension savings continue to be protected, I will need to apply for a permanent reference number from July 2016.

I enclose the following information for you to consider my interim Fixed Protection 2016 (FP2016) application.

[Insert first name]
[Insert surname]
[insert National Insurance number]
[insert date of birth]
[insert address]

I confirm that as at 5 April 2016 I did not hold any of the following protections:

• Primary Protection
• Enhanced Protection
• Fixed Protection
• Fixed Protection 2014

I understand that if I, my employer or a third party make further contributions to my scheme I must notify HM Revenue and Customs and that my FP2016 will be lost.

I also know that if my pension scheme has benefit accrual, that in some circumstances FP2016 may be lost and that I am responsible for testing for benefit accrual. I understand that my pension scheme administrator can help provide me with information to help me carry out the test.

The information that I have provided is correct to the best of my knowledge and belief.

[Signature]
[Date]

10. Appendix 4 – IP2016 interim application process

I wish to apply for Individual Protection 2016 using the interim application process.

I confirm that I will be taking benefits before the new online system is available in July 2016 and I know that to ensure that my pension savings continue to be protected, I will need to apply for a permanent reference number from July 2016.

I enclose the following information for you to consider my interim Individual Protection 2016 application.

[insert first name]
[insert surname]
[insert National Insurance number]
[insert date of birth]
[insert address]

In addition, my total relevant amount is [insert value £] and is the sum of amounts A to D (A+B+C+D) below.

Amount A

The amount of my pensions in payment before 6 April 2006 was [insert value £], valued at 5 April 2016.

Amount B

Between 6 April 2006 to 5 April 2016, I crystallised benefits to the value of [insert value £], valued at 5 April 2016.

Amount C

My uncrystallised pension savings in UK registered pension schemes were valued at 5 April 2016 at [insert value £].

Amount D

My uncrystallised pension savings in relieved non-UK pension schemes at 5 April 2016 were valued at [insert value £].

I confirm that at 5 April 2016 I did not hold Primary Protection or Individual Protection 2014.

The information that I have provided is correct to the best of my knowledge and belief.

[Signature]
[Date]

11. Appendix 5 - Tapered annual allowance and alignment of pension input periods: member messages

What is the annual allowance (AA)?

The AA is the limit on the amount of pension savings you can make in a tax year before a tax charge (the AA charge) applies. This includes pension savings someone else makes on your behalf eg your employer.

You can get tax relief on pension contributions you pay up to 100% of your annual earnings or if you don’t have earnings, you can pay up to £3,600 and get tax relief.

Pension savings you make above the AA will still get tax relief if the value is within 100% of your annual earnings, but you usually pay the AA charge if pension savings (including those made on your behalf) go above the AA.

The AA charge recoups the tax relief given to your pension savings that are over the AA for a tax year.

What changes have been made to the AA rules?

At the Summer Budget 2015, the government announced changes to reduce the AA for individuals with income over a certain amount.

If your adjusted income for a tax year is over £150,000 your AA is reduced on a tapered basis. This change applies from tax year 2016 to 2017 onwards.

Also, all pension input periods (the period over which pension savings are measured) will match the tax year from 2016 to 2017 onwards. This change applies to everyone regardless of their level of income.

Transitional rules apply for tax year 2015 to 2016 so that all pension input periods are aligned during 2015 to 2016 and will match the tax year from the beginning of tax year 2016 to 2017. The transitional rules apply in a number of ways including:

• splitting tax year 2015 to 2016 into 2 mini tax years for annual allowance purposes only
• setting allowances and pension input periods for the mini tax years
• calculating pension input amounts for the mini tax years, and
• carrying forward unused annual allowance to the mini tax years and later tax years

You can find further information on the transitional rules in PTM058000 of the Pensions Tax Manual.

Will the introduction of the tapered AA affect me?

If your adjusted income is more than £150,000 and you are saving into a pension scheme with the benefit of tax relief, you will be affected by the tapered AA.

Does this £150,000 income level include my pension contributions and other pension savings?

Yes, the tapered AA income definition is based on your taxable income and includes all your pension savings for the tax year concerned. Your taxable income could include:

• earnings from employment
• earnings from self-employment
• most pensions income (State, occupational and personal pensions)
• interest on most savings
• income from shares (dividend income)
• income from a trust

You can find further information on the tapered AA income requirements in PTM057100 of the Pensions Tax Manual.

What if my pension scheme receives an increase in pension contributions from my employer and this takes my income over £150,000?

If your income does not usually exceed £150,000 but you receive a one off increase in pension savings from your employer (other than by a salary sacrifice type arrangement) in a tax year that takes you over £150,000, an income threshold of £110,000 will apply. If your income does not exceed this threshold you will not normally be subject to the tapered AA.

If my income is more than £150,000 how much will my AA be reduced by?

If you are affected by the tapered AA, your AA will be reduced by £1 for every £2 of adjusted income you have over £150,000 subject to a maximum reduction of £30,000. For example, if your income exceeds £210,000 for a tax year your AA will be £10,000 for that tax year.

If you are a member of a money purchase scheme and you have flexibly accessed your savings different rules may apply. The money purchase annual allowance rules (MPAA) rules provide more information.

How can I check if I am affected by the tapered AA?

To check whether the tapered AA affects you, you will need to know your income (including all pension savings) for 2016 to 2017 onwards.

Do I need to know about any other changes to my pension scheme?

Yes. In the past, pension input periods did not have to align with the tax year but from 6 April 2016 your pension input periods will be tax year based so will run from 6 April to the following 5 April.

Your pension scheme may tell you about this change but other than being notified you may not notice a difference. You can find further information on the transitional rules for 2015 to 2016 in PTM058000 of the Pensions Tax Manual.

Will the pension savings I made before the changes to the AA were announced be affected?

Yes. Transitional rules for the AA and pension input periods were introduced from 8 July 2015.

The transitional rules mean that any pension savings you have made during pension input periods that end during 6 April 2015 to 8 July 2015 of up to £80,000 are protected from an AA charge.

If you are also subject to the MPAA different limits apply and these are explained in PTM058090 of the Pensions Tax Manual.

How can I check how I am affected by the transitional rules for 2015 to 2016?

Tax year 2015 to 2016 is now split into 2 mini tax years for AA purposes only (including the MPAA):

• the pre-alignment tax year (6 April 2015 to 8 July 2015), and
• the post-alignment tax year (9 July 2015 to 5 April 2016)

An AA test applies for both the pre and post-alignment tax years to determine if you are subject to the AA charge for any of those 2 mini tax years. If there is a chargeable amount a single AA charge applies for 2015 to 2016 overall.

You may have made pension savings of more than £40,000 prior to 9 July 2015 expecting that those savings would be tested against the AA for tax years 2015 to 2016 and 2016 to 2017. As they will now only be tested against a single AA for 2015 to 2016 the transitional rules protect savings made in the first mini tax year, up to a maximum of £80,000 plus any unused annual allowance you can carry forward from previous years.

So you will only be affected for the first mini tax year if your pension savings for it exceed £80,000 plus any available carry forward.

If you are affected for the first mini tax year any savings for the second mini tax year will also be affected. If you are not affected for the first mini tax year, whether your pension savings for the second mini tax year are affected depends on what your savings for the first were.

The AA for the post-alignment tax year will be nil for many individuals. However, pension savings are tested against an AA that is made up of any unused AA from the first mini tax year up to a maximum of £40,000, plus any available unused AA carried forward from the previous 3 full tax years.

If you had pension savings on or after 9 July 2015 (and you weren’t a member of a registered pension scheme during the first mini tax year) your AA for the second mini tax year will be £40,000.

If you have triggered the MPAA rules for 2015 to 2016 different rules may apply PTM058090 of the Pensions Tax Manual.