DP Pensions Ltd

DP Pensions Ltd still welcomes SIPP commercial property borrowing – unlike other Provider

Following the recent reports that Standard Life will no longer permit SIPPs to undertake a mortgage for a commercial property purchase, we wish to confirm our commitment to allowing SIPPs and SSASs to continue to borrow up to 50% of the net assets of the scheme.
We have no plans to change our view on this. Most borrowing is subject to usual terms and conditions agreed with the lender. Although there have been difficult times for clients we have not experienced any defaults. Please call if you wish to discuss a commercial property purchase.
The relevent news articles can be found at:
See our Property and Borrowing Sections for more information about borrowing and commercial property

Important Changes to the Lifetime Allowance, Fixed Protection 2014, Individual Protection 2014, Annual Allowance that may require your attention

About this document

This Bulletin is based on our understanding of current and proposed legislation and HMRC practice and every care has been taken to ensure it is correct. It is issued by DP Pensions Ltd for use by our SSAS and SIPP clients and their advisers. By its very nature it is a précis and can only be treated as a simplified indication of detailed legislation.
Please note that DP Pensions Ltd is not authorised to give financial advice. We do not know all of your circumstances or details of any other pension schemes of which you are a member. You should contact your financial adviser for help on how these new rules affect you personally.
No responsibility to any third party is accepted if this information is used for any other purpose. The legislation and HMRC practice may change in the future.

The Lifetime Allowance to reduce from £1.5 million to £1.25 million

The Lifetime Allowance is the maximum amount of pension savings, that an individual can accumulate free of tax, across all pension funds. The Lifetime Allowance is currently £1.5 million (for the 2013/14 tax year). However, this will be reduced to £1.25 million from the 6th April 2014.

Fixed Protection 2014

The Government has introduced a new “Fixed Protection 2014” to protect those clients whose funds do (or may) exceed the new limit of £1.25 million up to the current Lifetime Allowance of £1.5 million.
You must apply for the protection online and the deadline for applying is the 5th April 2014.

How do I decide if I need Fixed Protection 2014?

HM Revenue & Customs has set up an online tool to help you decide whether you should apply for Fixed Protection 2014 and/or Individual Protection 2014. The tool can be found at www.hmrc.gov.uk/pensionschemes/fp14online.htm.
You should also contact your Financial Adviser who will be able to advise you.
Please note that Fixed Protection 2014 is only available if you don’t have any of the existing Lifetime Allowance protections on 6th April 2014. Those protections are primary, enhanced or fixed protection 2012. If you have one of these protections you should check that the particular protection you have remains valid. If the existing protection is lost before 6 April 2014, then you will be able to apply for fixed protection 2014, giving you a protected Lifetime Allowance of £1.5 million from 2014-2015 onwards.

How do I apply for Fixed Protection?

If you decide that you want to apply for Fixed Protection 2014 you should notify HM Revenue & Customs by completing their online form. The form can be found at www.hmrc.gov.uk/pensionschemes/fp14online.htm. The deadline for submitting the form is the 5th April 2014.
HM Revenue & Customs will provide you with an immediate confirmation of receipt when you submit your online application. Once they have processed and accepted your application, they will also send you a certificate which you should show to your pension scheme administrator every time you take any benefits from your pension scheme(s).

How do I make sure that I do not lose Fixed Protection 2014?

If you have successfully applied for Fixed Protection 2014 then to keep this protection there are restrictions on any tax relieved pension savings that you can make from 6 April 2014. The basic requirement is that no further contributions can be paid into any pension schemes for you from that date. This includes accruing benefits in a final salary pension scheme.
More information about these restrictions and Fixed Protection 2014 can be found at www.hmrc.gov.uk/pensionschemes/pension-savings-la.htm.

Individual Protection 2014

In addition to Fixed Protection 2014, the Government has also announced that it will introduce an Individual Protection 2014. However, the details of this have not yet been decided. The Government launched a consultation on this subject on the 10th June 2013 and this runs until 2nd September 2013. It is proposed that members will be able to apply for the protection from the 6th April 2014 and that they will have three years in which to make their application. More information about Individual Protection 2014 will be provided once they are known.

The Annual Allowance

The Annual Allowance is the total amount that can be contributed to pension schemes for an individual each year that will qualify for tax relief. It is currently £50,000 per annum for the 2013/14 tax year. However, this will be reduced to £40,000 from the 6th April 2014.
For people who do not use all of their annual allowance in a particular year, they can carry forward any unused relief for up to three years, provided they were a member of a registered pension scheme during the period. The Government has confirmed that the amount that will be available to be carried forward will be based on the annual allowance that was applicable in the year that the member is carrying forward from.
Please note that other thresholds also apply to contributions. Individuals will only receive tax relief on personal contributions up to 100% of relevant UK earnings; and Employers will only receive tax relief on company contributions where the contribution is ‘wholly and exclusively for the purposes of the business’.

Changes to the Lifetime Allowance, Annual Allowance and Capped Drawdown rates

Update on the Chancellors Autumn Statement announcements

Lifetime Allowance

The Lifetime Allowance is the maximum amount of pension savings, that an individual can accumulate free of tax, across all pension funds. The Lifetime Allowance is currently £1.5 million. However, this will be reduced to £1.25 million from the 6th April 2014.
Members with enhanced, primary or fixed protection will not be affected by the reduction in the lifetime allowance. A member will lose fixed protection or enhanced protection if further contributions are paid by or on their behalf.
The Chancellor announced a new “Fixed Protection 2014” will be available for those who may be affected by this cut. The forms are expected to be ready by the summer of this year, with a deadline for submitting them to HMRC of 5th April 2014.
The Chancellor also announced that they are considering a new “personalised protection” in addition to Fixed Protection. This would allow members whose pension savings are over £1.25 million on 5th April 2014 to continue to make pension contributions with an individual lifetime allowance of the greater of the value of their pension rights on that date and the new lifetime allowance. The Government will discuss this possibility with interested parties.

Annual Allowance

The Annual Allowance is the total amount that can be contributed to pension schemes for an individual each year that will qualify for tax relief. It is currently £50,000 per annum. However, this will be reduced from £50,000 to £40,000 from the 6th April 2014.
For people who do not use all of their annual allowance in a particular year, they can carry forward any unused relief for up to three years, provided they were a member of a registered pension scheme during the period.
The Government has confirmed that the amount that will be available to be carried forward will be based on the annual allowance that was applicable in the year that the member is carrying forward from.
Please note that other thresholds also apply to contributions. Individuals will only receive tax relief on personal contributions up to 100% of relevant UK earnings. Employers will only receive tax relief on company contributions where the contribution is ‘wholly and exclusively for the purposes of the business’.

Capped Drawdown

In 2011, the Government reduced the rate that we use to calculate the maximum pension that a member can draw from their pension each year under capped drawdown. We were required to use 100% of the Government Actuary Department (GAD) Rate, rather than the 120% that we could use previously.
The Government has now announced that the rate will be brought back up to 120% of GAD. Legislation is needed to affect this change, but the draft legislation has been released for consultation.
The change will take effect from the 26th March 2013. This means that members can take advantage of this new rate at their next pension review after this date. Members can also request an interim review at any pension year end falling after the date.
However, please note that since the primary legislation will not be enacted until the summer of 2013, we cannot allow members to draw their full entitlement until that time in case the rules are amended before they become law.

Gender equalisation for calculation of capped drawdown limits

With effect from the 21st December 2012 the rates used to calculate women’s pensions under capped drawdown will be brought in line with the rates used for men. This change was brought about as a result of a recent European Court of Justice ruling which found that insurance companies cannot base the price of pensions on the gender of a person.
Currently there are separate Government Actuary’s Department tables for men and for women and we use the appropriate one when calculating someone’s maximum pension under capped drawdown. However, from the 21st December we will have to use only the men’s tables for both men and women. The rates on the men’s tables are better than the rates on the women’s tables because men on average have a lower life expectancy than women. As a result, women will be better off following this change and men will be unaffected.
Any female clients who are already receiving a pension through capped drawdown or who begin drawdown before the 21st December will continue with their current maximum pension until their next pension review. At that date their review will be conducted using the men’s tables.
All of our SSAS and SIPP clients also have the right to request that their maximum capped drawdown pension is reviewed on any pension year end date. This would mean that our female clients might be better off if they request a review at their first pension anniversary following the change.
Any female clients who are considering taking their benefits and drawing an income through capped drawdown, may be better off if they wait until after the 21st December as we will then be able to use the new rates.
For further information about capped drawdown and how it is calculated, please visit the technical section of our website.

DP Pensions Ltd selects Metro Bank plc for its main SIPP bank account

We have been looking for some time to find a bank that can deliver a greater range of bespoke banking services to our SIPP clients as well as competitive interest rates and a high quality service. After much research, we have chosen to work with Metro Bank Plc.
DP Pensions has been providing pension administration services for over 25 years from its offices in Kent. We have been continually upgrading our own administration systems but have been seeking to work closely with a high street bank to provide a fully integrated banking service to our clients.
In selecting Metro Bank, we are seeking to maximise interest rate returns to our clients. The current rates that will apply to the accounts are as follows:

£0 – £50,000 0.200%
£50,000 – £500,000 0.375%
£500,000 and above 0.500%

A full range of banking products will be delivered on a one-stop basis, so eliminating the need for clients to seek more competitive banking returns elsewhere, however if any member wishes to hold another deposit account with another bank then we are happy for them to do so, but Metro Bank will be the audit trail account for the SIPP. We will have on-line access to all accounts and a full interface to our own systems and so will be able to permit clients to have immediate access to up-to-date balances and a full history of banking transactions. Each client will sign a mandate for their new account and migration will be controlled and smooth. From 5 December 2011 all new SIPPs will be set up with a Metro Bank account.
Metro Bank is the first new British bank on the high street in over 100 years. They opened their doors to the public on the July 2010. In order to launch this service they have built a dedicated team of professionals with over ten years experience of providing pension banking requirements. Metro Bank is FSA approved and complies with the FSA’s proposed new capital adequacy requirements for banks.
If you wish to discuss this further or have any other questions please do not hesitate to contact your account administrator.

We are not accepting SIPPs making loans to Solar Solutions

If you are trying to set up a SIPP with ourselves in order to complete a Pension Back loan to a 3rd party company Solar Solutions and have been told by them or Pension Back Loans (a trading name of FS Resourcing Ltd) that we will accept these loans please note that this is incorrect. We have decided that we are not allowing these loans.

Latest News on Minimum Income Requirement (MIR)

In our newsletter dated 20 December 2010 we stated that the new Pension changes were going to allow a new drawdown called ‘Flexible Drawdown’. These new rules stated that to qualify for Flexible drawdown you had to have a minimum income requirement (MIR) of £20,000 pa. This income could be a mixture of social security pensions, lifetime or dependants’ annuities or scheme pension.
Yesterday, 31 March 2011, there was an amendment that stated for scheme pension to qualify for MIR it had to be from a scheme of 20 or more members. This effectively rules out SSAS or SIPP scheme pension being used to provide the MIR. There are, of course, other reasons where scheme pension will be a useful tool for clients.

New rules for the review of drawdown cases

You will be aware from our last Newsletter that the new legislation which is effective from 6 April 2011 brings in new rules for drawdown cases.  GAD rates are changing and the maximum pension is going to be 100% of GAD rather than 120% of GAD. Any review that is due now will be held for the next 5 years, unless the client wishes a review to be completed earlier.  Though very few clients take 120% of GAD if your client has a Pension Commencement Date anniversary falling between now and 5 April 2011 then they can request that the review is done now early and the new figures would hold for the next 5 years or age 75 if earlier.

New Drawdown Rules (including for post age 75) and changes to the Lifetime Allowance announced on 9th December 2010

The proposals to change the way we take benefits from money purchase schemes (including personal pension schemes) were more radical than many expected. The rules appear to be simpler than what went before and certainly more flexible for those with significant pension funds.

The lifetime allowance

The government’s proposals make changes to the lifetime allowance. From the tax year 2012/13, the lifetime allowance will reduce from £1.8 million to £1.5 million. The lifetime allowance tax charges remain at 55% and 25%.

Fixed protection

For individuals who run the risk of breaching the revised allowance there is an option to claim ‘fixed protection’ by 5 April 2012. HMRC will provide forms. Fixed protection freezes the lifetime allowance at £1.8 million, but subject to conditions that are similar (but not the same) to those that apply to a claim for enhanced protection. Fixed protection will be lost if, after 5 April 2012:

  1. there is further benefit accrual such as payment of contributions;
  2. the member takes out a new arrangement other than to accept a transfer of pension rights;
  3. there are certain ‘impermissible’ transfers or transfers that are ‘not permitted’.

Fixed protection is not available to individuals who have claimed enhanced or primary protection, but neither is it needed because these options are not affected by the reduction in the lifetime allowance: protected benefits are not reduced with the lifetime allowance.

Dealing with the consequences

Equally important to the reduction in the lifetime allowance are the consequences for a number of rules that are associated with it.

Trivial commutation

For example, the trivial commutation and winding-up lump sums have been limited to one per cent of the lifetime allowance and are currently limited to £18,000. From 6 April 2012, the limit becomes £18,000 and The Treasury is given power to increase the figure. The age limit for paying a range of lump sums including a defined benefit lump sum (life assurance) is removed.

Retirement lump sum

More important is the impact on the pension commencement lump sum. If fixed protection is not claimed, then the overriding maximum lump sum will reduce to 25% of the lower lifetime allowance: £375,000.
If the member has claimed primary or enhanced protection and the lump sum entitlement at 5 April 2006 stood at £375,000 or more (member-level protection) the reduction in the lifetime allowance will have no effect on the protected lump sum. The lifetime allowance will be assumed to have remained at £1.8 million or the current standard lifetime allowance if that is higher in future. There is no need to claim fixed protection.
If the member has scheme specific lump sum protection because the scheme does not fall within the previous category, but the lump sum exceeds 25% of pre-2006 rights, then the protection will continue on the basis that the lifetime allowance is £1.8 million or a future higher standard lifetime allowance.
Value of arrangement on 6 April 2006 £200,000
Value of pre-2006 lump sum rights at 6 April 2006 £100,000
Lifetime allowance in 2006/07 £1.5 million
Lifetime allowance in 2011/12 £1.5 million
‘Protected’ lifetime allowance £1.8 million
Increase 20%
Value of lump sum rights in 2011/12 £120,000
Increase 20%

The Requirement to Annuitise

The headline changes concern what HM Treasury calls ‘The Removal of the Effective Requirement to Annuitise by Age 75’. The central features are the abolition of the alternatively secured pension for new and existing arrangements and the reduced significance of age 75 in retirement planning. The measures are effective from 6 April 2011.

Change to Benefit Crystallisation Events (BCEs)

BCE 5A is currently described as reaching age 75 whilst in receipt of an unsecured pension. For the purposes of measuring against the lifetime allowance, the value is taken as the value of the fund less the aggregate amount of funds already crystallised under BCE 1 (designation of USP). Under the new rules, the BCE refers to the member reaching age 75 whilst a member of a money purchase scheme. The value is the aggregate of the fund supporting drawdown (if any) and ‘unused’ funds.

Abolition of Alternatively Secured Pension (ASP)

Under current rules, the fund converts to ASP at age 75. The new rules will abolish ASP and rename Unsecured Pension (USP) as ‘drawdown pension’. Drawdown pension will continue up to and beyond age 75 until the member dies or chooses to convert the fund to a scheme pension or annuity. When the member reaches that age BCE 5A will measure benefits against the lifetime allowance and there will be no further BCE.

Short-term annuities

Short-term annuities will not be required to expire by age 75, but they will still be restricted to a five year term.

Drawdown options

Drawdown pensions will offer two options.

Capped drawdown

This will be similar to the current unsecured pension. The withdrawal ‘limit’ will reduce to 100% of the basis amount (from 120% before 75) and the limit will have to be reviewed every three years until age 75 when reviews become annual. The option for member and administrator to agree an earlier review date remains.
The GAD rates will extend beyond age 75.
There is a technical amendment to prevent the value of drawdown funds reducing if there is an additional fund designation.
If an individual is in receipt of unsecured pension at 5 April 2011, the maximum withdrawal will remain at 120% of the basis amount until the earlier of the end of the five-year reference period and the end of the pension year in which there is a transfer to another arrangement or the member reaches age 75.
If the individual is taking ASP at 5 April 2011, the pension immediately converts to a drawdown pension and the maximum withdrawal becomes 100% of the (same) basis amount.

Flexible drawdown

This will allow unlimited withdrawals providing that the individual has a ‘secure’ income that meets a ‘Minimum Income Requirement’ (MIR). The MIR may be provided by an annuity, a scheme pension or a state pension. Pensions from overseas will also qualify if they would be regarded as annuities or scheme pensions if they were established in the UK. The MIR will be set at £20,000 in 2011/12. This option will allow the whole of the fund to be withdrawn although given that it will be added to any other income for the year and will then form part of the estate, for tax purposes, this may be of doubtful use.
There will be no upper age limit for taking the pension commencement lump sum although the link with entitlement to an associated pension will continue for the time being (six months before the pension starts, twelve months after).

Death benefits

There are significant changes to death benefits. If a member dies while in receipt of a drawdown pension at any time, the tax charge on the drawdown pension lump sum will be 55% (previously 35% and only available below 75). However, there will be no liability to inheritance tax if the lump sum is subject to the discretionary disposal rules and this exemption will extend to the inherited liability where the lump sum payment is deferred to a dependant. Similar rules apply to the payment of an annuity or pension protection lump sum.
If the member dies before age 75 and leaves an uncrystallised lump sum the benefit will be tax-free. If the member dies after 75 and leaves an uncrystallised lump sum, the benefit will be subject to tax at a rate of 55%. It is simply impossible to have an uncrystallised fund after age 74 under the current rules so the issue of a tax charge did not arise.
The option to provide a tax-free charity lump sum death benefit is not only retained under the proposals, but is extended to deaths under the age of 75. This can be an important factor in estate planning (as well as being good news for charities).
The changes to retirement and death benefits are reflected in similar rules for dependants.

Serious ill-health lump sum

The new rules remove the age limit of 75 for claiming a serious ill-health lump sum (when expectation of life does not exceed 12 months). However although the lump sum remains tax-free under the age of 75, it becomes subject to tax at 55% from that age.

The Market

These are substantial changes that simplify the retirement rules for money purchase schemes and remove some of the tax penalties. One of the consequences is that some of the more expensive and in some cases more risky alternatives to SIPPs and SSAS (in particular, QROPS) become less attractive when compared with the proposed regime.

New Annual Allowance Rules announced in Emergency Budget of 14th October 2010

As things turned out, the government’s proposals for restricting tax on pension contributions were not as severe as we expected. They are certainly easier to understand than those proposed by its predecessor.

The annual allowance

The annual allowance is applied to registered pension scheme input for an input period. The relevant annual allowance is determined by the tax year in which the input period ends.
Under a money purchase scheme, the input is the contribution. Under a defined benefit scheme a factor is applied to the increase in benefit accrual over the period.
Input periods can be varied from time to time and can differ for different arrangements and different members.
The features of input periods are:

  1. They must not be longer than 12 months, but there is no minimum period (subject to below)
  2. For an arrangement there must be no more than one input period end in a tax year (although it is possible to have different input periods and input period ends for different arrangements)
  3. There cannot be a gap between one input period ending and another starting in respect of the same arrangement

The latest proposals for change are due to be implemented from 6 April 2011. This means that they will apply to any input period ending from that date so their impact will be felt before then.

The new rules in brief

The annual allowance tax charge will be the member’s marginal rate of tax after adding the excess contribution to the individual’s ‘reduced net income’ for the tax year in which the relevant input period ends. Until 5 April 2011, the rate is 40%.
The annual allowance will be £50,000. There is provision to increase this figure. Until 5 April 2011, the annual allowance is £255,000 and was frozen at that level. It had been trailed that it was going to be no more than £40,000.
In order to convert defined benefit accrual to input for these purposes, the increased accrual (after an inflation adjustment) will be multiplied by 16. Under the original rules the multiplier was 10, but we had been ‘primed’ to expect that this would change to between 15 and 20.
To recognise that earnings patterns can be irregular, any unused allowance (£50,000 less any allowance used in the year) may be carried forward for up to three years in order to supplement a later annual allowance. The main condition is that the individual must have been a member of a registered pension scheme in the year from which the unused allowance is to be carried forward even if their input amount was zero. In theory this allows a ‘one-off’ contribution of £200,000. There is no carry forward facility under the original rules (and no real need for one)
The allowance is unlimited in the tax year in which the member dies or becomes entitled to a serious ill-health lump sum under the arrangement. Until 5 April 2011the allowance was unlimited in the tax year in which all benefits were taken from an arrangement or the member died.
There are transitional provisions that deal with contributions made before 6 April 2011 and how to carry forward unused allowance from before that date.


The new rules cannot apply to an input period that ends before 6 April 2011. If the input period ends in the tax year 2011/12, then the annual allowance will be restricted to £50,000.
However, if the input period started before 14 October 2010 and ‘straddled’ that date and the following 5/6 April then the draft legislation requires that the input period be treated as if it ended on 13 October and a new input period started the next day.
This means that a contribution of up to £255,000 could have been paid before 14 October, but that any contribution paid after that date is restricted to the difference between £255,000 and what was actually paid, but subject to a maximum of £50,000.
For the purposes of determining how much unused allowance can be carried forward from 2008/09, the assumed allowance for each of those years is £50,000.

Health warnings

As with all these technical changes it is crucial to see the wood for the trees:
Remember that the anti-forestalling provisions of the special annual allowance apply until 5 April 2011.
Remember that the annual limit for relief on personal contributions (i.e. 100%/£3,600) is unchanged.
Remember that employer contributions are only deductible if wholly and exclusively incurred for the business. This may be relevant if unused allowance is being used.

The above is based on our understanding of the draft legislation announced in the Emergency budget on 14 October 2010.It should be noted this could be amended. DP Pensions Ltd do not accept any liability for the above information and would suggest that you seek legal advice before proceeding