Schemes should communicate changes to the annual and lifetime allowance to both active and deferred members to ensure savers do not lose their fixed or individual protection, industry experts have said.
From April 5 this year, the amount members will be able to accrue tax-free will be reduced to £40,000 annually and £1.25m over the life of their pension, down from £50,000 and £1.5m respectively.
Trustees and employers need to be aware that it’s not just active members that could be affected, it could be deferred members as well
Lucy Dunbar
Members can register for fixed protection with HM Revenue & Customs, which would allow them to retain a lifetime allowance of £1.5m but prevent them from accruing any further benefits after April 5.
They could also register for individual protection, which allows members to protect the tax-free value of their pot and continue adding to it, with savings that breach the new lifetime allowance subject to tax.
A communication strategy that targets all members is important since employers do not know how much savings members have built up elsewhere, said Lucy Dunbar, senior associate at law firm Sackers.
“Trustees and employers need to be aware that it’s not just active members that could be affected, it could be deferred members as well,” said Dunbar.
However members that have primary protection – which could applied for by those who had built up in excess of £1.5m prior to April 6, 2006 – are unable to register for fixed or individual protection.
Some employers have built a section into their new-joiner forms for employees to declare any tax protections held elsewhere, Dunbar said.
Targeting comms
James Davenport, senior communications manager at the NHS Business Services Authority, said when there is a pensions event such as the tax changes, the NHS Pension Scheme calculates and processes member data to segment members before providing information to local employers.
Local employers then deliver those messages to employees. “What we’ll probably be doing is ensuring all of our employers are notified so they can have a word with their high earners and tell them about the option to apply for protection [if that is suitable for them],” he said.
Davenport said when the annual allowance was reduced to £50,000 from £255,000 in 2011, the scheme wrote to members who may have breached the limit and informed them of their options.
Schemes could communicate the changes to those members that have accrued a certain level of benefits, or are likely to in the future, said Karen Partridge, chief business development officer at communications company AHC. Since this method is more personalised, members take more of an interest in it, she added.
“If you’re going to have dedicated communications, if you’re going to segment your data and have triggered communications, to the same extent you have got to have a catch-all,” said Partridge.
Benefit statements are not the best option for this communication, said Nilesh Shah, executive pensions consultant at Barnett Waddingham.
“From what we have seen it’s not so much benefits statements because staff schemes have different timescales [for delivering statements] and time is of the essence at the moment,” he said.
Most schemes have sent out one-off communications including what the changes are, the options they need to consider and when they need to register by, Shah added.
