Doctors and dentists: It’s time to protect your pension

Earlier this year yet another raft of pension legislation hit us. Simultaneously, the Government put in place two ‘transitional regimes’ to protect those who have diligently saved for their retirement.

What are these two ‘regimes’ and how can they protect your hard-earned pension savings?

Doctors and dentists: It's time to protect your pension

On the 5th April 2016, the amount that you can save into pensions over your lifetime reduced from £1.25m to £1m. This means that if the value of your pension benefits is above the new, lower £1m lifetime allowance when you start taking your pension, you may well receive an unwelcome tax bill.

Fear not though you pension saving doctors and dentists, protection is available.

Protecting your pension with Individual Protection 2016 (IP16)

If the total value of all your pensions was in excess of £1m on the 5th April 2016, you can now protect your pension at this 5th April value. This is called Individual Protection 2016 (IP16).

It means that:

  • Your Lifetime Allowance (LTA) becomes your Personalised Lifetime Allowance (PLA)
  • You can have a Personalised Lifetime Allowance (PLA) based on the 5th April 2016 value of your pension benefits, capped at £1.25m. For example, if your pension benefits were valued at £1.1m on the 5th April, your PLA will be £1.1m. If your pension benefits were valued at £1.25m or above on the 5th April, your PLA will be £1.25m.
  • You can continue to accrue pension benefits after the 5th April 2016…with one proviso! If the value of your pension benefits is above your PLA when you start taking your pension, you may have to pay tax on the excess amount.

What if you don’t apply for IP16?

Without IP16 in place, you are likely to have to pay tax on the full amount that breaches the new £1m lifetime allowance limit.

Protecting your pension with Fixed Protection 2016

Even if the value of your total pensions was less than £1m on the 5th April 2016, you may still be able to protect your pension under the equally snappy title of Fixed Protection 2016.

With Fixed Protection 2016, you secure your lifetime allowance limit at £1.25m…assuming you meet certain conditions of course!

  • You don’t have any previous pension protection in place
  • You expect that, when you take your pension benefits, the total value of all your pensions will exceed £1m
  • You haven’t already and don’t breach the terms of Fixed Protection 2016
  • You cease all pension contributions with effect from the 5th April 2016

Which pension protection route is right for you?

Deciding which route to take – Individual Protection 2016 or Fixed Protection 2016 – is not an easy or quick decision to make. It needs careful thought and analysis, along with the answers to a multitude of questions.

Although these two pension protection vehicles came into existence in April of this year, the website for applications has not been ready until very recently. Even if it had been ready earlier, it’s unlikely that you would have known your 5th April 2016 NHS pension value at that time.

However, your* online NHS Total Reward Statement should now be updated and have the figures you need to apply for the relevant protection (*with the exception of dental or medical General Practitioners). Remember too, you also need the 5th April 2016 valuations for any other non-NHS pensions you have.

If you’re a General Practitioner, you have to be a little more patient before you can apply for pension protection; your NHS Total Reward Statement won’t be updated online until late 2017. That is still some way off I admit but there are no time restrictions to applying, if indeed applying is right for you.

For more information on whether or not you should apply to protect your pension, speak to your specialist independent financial adviser.

It’s also worth referring to this useful information sheet on lifetime allowance protections, provided by the NHS Pensions Agency.

Do you know if applying for pension protection is right for you and, if so, which protection you will be applying for? Let us know by adding a comment below.

3 thoughts on “Doctors and dentists: It’s time to protect your pension

  1. James Crossland

    Regarding Fixed Protection 2016: ‘the value of your total pensions was less than £1m on the 5th April 2016’ and ‘•You cease all pension contributions with effect from the 5th April 2016’. How then, even with a Fixed Protection lifetime allowance limit of £1.25m, are you supposed to accrue further pension benefits?

    Regarding Individual Protection 2016 (IP16): ‘•You can continue to accrue pension benefits after the 5th April 2016…with one proviso! If the value of your pension benefits is above your PLA when you start taking your pension, you may have to pay tax on the excess amount.’ Surely, if you have continued to accrue pension benfits after the 5th April 2016 (when the level of your PLA was set) then the value of pension benefits will always be above your PLA, not ‘if’ as mentioned above.
    Thank you for your advice.

    Reply
    1. Max Spurgeon

      Dear James

      If you are a member of the NHS pension, you still accrue benefits even if you become a deferred member as it indexes with inflation. If you have a private pension it is possible that any growth may take your portfolio in excess of the LTA or your PLA. Conversely, a fall in the markets could cause the value of a private pension to drop and subsequently you find yourself below the LTA or your PLA. We also need to take into consideration that the LTA is due to increase with inflation from 2018.

      I am trying to illustrate a few examples that suggest why we have used “if” and not something more definitive.

      I hope this answers your question.

      Regards

      Max

      Reply

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