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Why fixed protection for pensions could save GPs thousands

I gave a lecture a few weeks ago on the hot topic of pensions, specifically the reduction in the lifetime allowance from £1.8m to £1.5m which takes effect in just a few weeks time on 6 April 2012.

In my lecture I mentioned that a GP with a projected pension of £65,300 would be caught by the rules and then went on to show the enormous additional tax payable by a GP with a pension of £95,000 who did nothing about it. There was some consternation from the audience who complained that no GPs were in receipt of pensions anything like this.

While it’s true that most GPs will not have pensions as high as this, some will and some will have more. Perhaps they prefer to keep this news to themselves?

And so it was that a GP contacted me this week to ask what he should do about his projected pension of £105,000 at age 60. There are a number of options he needs to consider, but taking fixed protection is one of them. If you don’t know what fixed protection is – look it up now.

Failure to do so could literally cost you thousands of pounds in tax, and there will be many GPs who should be considering it.

There are some particular traps that GPs could fall through, and I recommend thinking carefully about the following:

* If you already have primary or enhanced protection, don’t automatically apply for fixed protection. You can’t have fixed protection and primary/enhanced protection so check out which is most valuable to you.

* The application for fixed protection needs to be received by HMRC by 5 April 2012, so don’t leave it until the last minute.

* You cannot continue to make pension payments after the acceptance of your fixed protection – or the fixed protection will be lost. Make sure you cancel all existing payments and keep evidence that you have done so. HMRC has confirmed that if a payment is made by mistake after fixed protection is granted you will not lose the fixed protection, so make sure you keep evidence of stopping contributions to prove the payment was a mistake.

* GPs can’t go a week without someone commenting on pensions, whether it is the Hutton report, the BMA and industrial actions, 1995 or 2008 schemes but this lifetime allowance is a real issue and you need to think about it.

Talk to your accountant or financial adviser about the implications, and/or read the HMRC link above, doing nothing could be very expensive and the clock is ticking.

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