28th September 2016
Some 17,453 applications have been received for lifetime allowance protection since the online service was launched on 28th July says HMRC.
It has also received 617 applications related to the 2014 reduction in allowance from £1.5 million to £1.25 million.
Nathan Long, senior pension analyst at Hargreaves Lansdown says: “Pension investors have flocked to register for the latest round of protections as the drop in the Lifetime Allowance begins to bite. A £1 million lifetime limit is no longer a problem just for the highest earners and could impact those who have invested their pension wisely. It can be a real dilemma to understand if you may be impacted as the rules are complex, however all is not lost for those who think they may bump up against the limit. Providing no further contributions have been made since 5th April this year they can still apply for protection against the latest drop with some even able to claim alternative protection while continuing to make contributions.”
What pension investors should do.
5 steps for people with large pension pots.
1) Get valuations for all of your pensions, this includes defined benefit pensions. You need to know where you stand as all of your pensions should count, so uncovering any old pension schemes from previous employers is a must.
2) Work out when you will retire and project forward your pensions – you can do this using an online pension calculator. This should help you understand if there may be an issue.
3) Those who have not paid in to their pension since 5th April can apply to keep a Lifetime Allowance of £1.25 million. If you have made further pension contributions since 5th April this year all may not be lost providing your pension was already more than £1 million. You can still apply to have individual protection against the drop in allowance which allows you to shelter more than the new lower limit. What’s more, if your pension was more than £1.25 million on 5th April 2014, an even higher protection may be available.
4) Don’t forget employer contributions. You may be odds on to breach the allowance if you continue paying into your company pension, but depending upon the generosity of the contributions it could still be worth staying in even if you are taxed heavily when the money is withdrawn. Speak to your employer, they may offer you extra salary in exchange for forgoing future pension contributions.
5) If you are unsure, seek financial advice. This is a very complex element of financial planning and one of the times when paying for professional advice could be beneficial.