One of our members recently applied for, and received, his AFPS05 pension and lump sum due for payment on his 65th birthday.
However, it was not until after he received his award letter that he became conscious for the first time that the value of his benefits exceeded the Lifetime Allowance threshold of £1m and a tax liability was payable. This charge had already been paid by Veterans UK and an adjustment made to the pension award before the award letter was received by our member. After seeking our advice on the best way to proceed we advised him to apply for Fixed Protection 2016 and forward the Protection Notification Number to Glasgow and request that the award be re-assessed as a consequence of the protection being in place.
Glasgow rejected the request for reassessment because “the FP was not in place at the Benefit Crystallisation Event on 27 Dec 16 the tax charge has been paid to HMRC and we are unable to revise the award in payment. If you wish to take this matter further you should contact HMRC directly with regard to the tax charge.”
The FPS advised our member to submit a complaint under the Internal Dispute Resolution Procedures since our investigations with HMRC concluded that there was no rule within the the Lifetime Allowance tax regime that made clear a pension award could not be reassessed after a tax charge had been deducted when a form of Protection was not made available to the pension provider at, or before, the pension was put into payment (technically known as a Benefits Crystallisation Event). We also advised our member to write to HMRC and obtain their opinion of the ruling made by Glasgow.
The HMRC responded positively be stating that our member should be able to both apply for protection retrospectively and have that protection applied to his pension award assessment. This letter was forwarded to Glasgow as supporting evidence to the IDRP with the upshot that Glasgow capitulated and common sense prevailed.
The moral of this story is that whilst retrospection of protection is allowable, it will save a lot of time and worry to determine whether you have entitlement to any form of Lifetime Allowance protection long before your pension is due to come into payment, and if so, obtain that protection as soon as possible