Reductions in pensions taxation limits from April this year mean that more senior firefighters retiring after 5 April or receiving a promotion could breach the Lifetime or Annual Allowance for tax efficient pensions savings.
From 6 April 2014, the Lifetime Allowance (LTA), which is the maximum amount of pension savings that benefits from tax relief over a person’s lifetime, will reduce from £1.5m to £1.25m. The limit on the tax efficient pensions savings that can be made in any one year, the Annual Allowance, will also reduce from £50,000 to £40,000.
Firefighters could breach the new annual allowance if they have more than 20 years’ service. The changes don’t just affect the highest earners; an Area Manager receiving a promotion could breach the annual allowance if he or she has over 20 years’ service.
Deputy and Assistant Chief Fire Officers retiring on full pension from April 2014 could breach the lifetime allowance for the first time when it reduces from £1.5m to £1.25m.
The warning comes from MyCSP, UK central government’s first mutual joint venture and administrator of the civil service pension scheme.
MyCSP is advising the Fire and Rescue Service to support firefighters through the changes so that they are aware of how they might be affected, the options available to them and the action they need to take.
Firefighters should consider their intended retirement date, the amount of lump sum they plan to take and their likely increase in pay. Crucially, members need to consider whether to apply to for fixed protection to protect the current lifetime allowance of £1.5m before 5 April 2014.
To help employers communicate the changes, MyCSP has launched a new service that helps explain to senior roles the impact of the changes. The service incorporates seminars, projections for individuals showing the potential impact of the changes in various scenarios and one to one sessions with senior staff.
Virginia Burke, business development director, MyCSP; “It is important that scheme members are aware of the upcoming changes in order to make informed choices about their options and ensure the correct HMRC reporting procedures are followed.”
31 January 2014
• Deadline to complete a self assessment for those who have a tax charge to pay for 2011/2012 or 2012/2013 pension accrual, or face interest payments
5 April 2014
• Employees must apply for fixed protection 2014*
6 April 2014
• Annual Allowance reduces from £50000 to £40000. Lifetime Allowance reduces from £1.5m to £1.25m.
• Individual protection becomes available and members retiring will be subject to the lower Lifetime Allowance
July – October 2014
• Pension Savings Statements issued in respect of 2013.14 tax year
* If members are affected by the lifetime allowance they can apply for Fixed Protection 2014 to retain the current Lifetime Allowance of £1.5m or Individual Protection after 5 April 2014. Fixed protection would require accrual of all future pension benefits to cease at 5 April 2014 therefore it is important members register before this date. If pensions growth has exceeded the annual allowance charge in 2011/12 or 2012/13 and a tax charge is payable, a self assessment return completed by 31st January.