Individual Protection 2014 (IP14) can be used to restore a consultant’s personal lifetime allowance to the value of his/her pensions benefits on 5 April this year (if they exceed £1.25million, up to a maximum of £1.5million at that time). The lifetime allowance or LTA was reduced earlier this year leaving existing pension funds at risk of tax charges at retirement.
Members who applied for the previous incarnation, Fixed Protection, found that this protection was hard to retain if they stayed in the NHS pension scheme as annual benefit increases could not exceed inflation. As opting out is not a compelling choice for the majority of consultants this meant difficult decisions were required about continuing to fund pensions or face paying tax charges in the future.
With IP14, you can remain an active member of the NHS pension scheme and it cannot be ‘lost’ in the same way as both Fixed Protection schemes. It can also be used even if the individual already has Fixed or Enhanced Protection in place.
In order to claim IP14, doctors will need a value of their pension benefits, from all their pension providers, as at 5 April 2014. The NHS Pensions Agency will now allow an application to be submitted for the necessary valuation although this may still take some time to produce.
Remember, while IP14 is a valuable protection tool, the taxation of pension benefits is a particularly complex area. The constant change in the types of tax protection available means this is an area where more senior doctors are coming unstuck.
The best course of action to be taken will depend on the value of your pension pot, your pensionable salary and the number of years left until retirement. Taking independent financial advice about your options is recommended.
HMRC will accept applications for IP14 until April 2017 but it could be important to apply now, particularly if you are considering retirement before 2017. With the protection not in place, the NHS will assume a lifetime allowance at the reduced rate of £1.25m.
If individuals establish IP14 after retirement, they could then be forced to reclaim any overpaid tax retrospectively – a much more complicated task.
To get specialist help call one of our advisers on 020 7636 7006.