This article reports on several changes to official guidance and other recent publications concerning pensions tax legislation, including two Pensions Schemes Newsletters.

Fixed Protection

Individuals without primary protection who consider they might accrue pension benefits in excess of £1.5m, or have already done so, would be wise to assess whether to apply for fixed protection (FP), under FA 2011 Sch 18 para 14. Those with only enhanced protection can renounce it in favour of FP.

FP is a transitional protection against the reduction in the Lifetime Allowance from £1.8m to £1.5m from 6 April 2012. It is available to individuals with uncrystallised pension rights at 5 April 2012, who are not relying on enhanced or primary protection, subject to the following conditions:

• there must be no benefit accrual under a cash balance or defined benefit arrangement;
• no new contributions can be paid to an other money purchase arrangement (if an individual is auto-enrolled, they must opt-out within one month or lose FP);
• a new arrangement may only be effected if its sole purpose is to receive a transfer from an existing pension arrangement;
• any transfer must be a permissible transfer.

As reported in our earlier article, application for FP must be in writing, using form APSS227 (see also accompanying notes) - and received by HMRC no later than 5 April 2012. If FP is subsequently lost, the individual is duty-bound to tell HMRC within 90 days or face a £300 fine, increasing by £60 daily until the information is provided.

Thus there is little time remaining for affected individuals to be notified, advised and to decide. While for those with only money purchase benefits the assessment will be relatively straightforward, members with defined benefits face a very difficult decision because the "benefit accrual" test is complicated. Unresolved questions have thus far prevented many from completing the form, although it has been available since August. Late last month, Pension Schemes Newsletter 50 provided some very welcome clarification and amplification of the relevant pages of the RPSM.

A key point to understand is that unlike enhanced protection, the benefit accrual test for FP is continuous and may be lost at any instant; thus close monitoring will be required. The PSN includes more detail on what constitutes 'benefit accrual' for defined benefit arrangements; specifically how the 'Relevant Percentage' might apply either in relation to the rise in the Consumer Prices Index or in relation to scheme rules. New guidance covers the effect of late retirement factors and how the test works in the year benefits crystallise or when only some benefits are taken from an arrangement.

Annual Allowance: new HMRC interpretation of carry forward rules

HMRC has issued revised guidance on how the carry forward rules work for the annual allowance in the transitional tax years of 2008/09, 2009/10 and 2010/11 (there is no change to the rules outside these years). As illustrated by the revised Example 2 on page RPSM 061.08.030, if in either 2009/10 or 20010/11 the member had a pension input amount of more than £50,000, the excess is NOT treated as using up available carry forward allowance from the preceding year: it is simply disregarded. This is a welcome re-interpretation of the legislation (FA 2011 Sch 17 para 30).