Protecting Your Pension

Should you elect for fixed protection?

In October 2010, the Government announced that the lifetime allowance for pension savings for individuals will be reduced from the current level of £1.8 million to £1.5 million from 2012-13 onwards.

Anybody who has pension funding in excess of this new lifetime allowance limit will face a tax penalty of 55% on any amount above £1.5 million. Is this fair?

No it’s not - certainly not to somebody retiring with an expected fund of £1.7 million in say April 2013! This it seems is apparent for all to see, including the Government.

Certain provisions and options have therefore been put in place to allow those it may affect most to take advantage of new lifetime pension allowance protection rules.

New fixed pension protection rules

By opting to protect your lifetime pension allowance you will be able to retain the £1.8 million allowance and elect to take your pension fund at a suitable later date.

Surely then everybody should elect to maintain their £1.8 million allowance? Not necessarily. There is a catch.

If you elect to protect your lifetime pension allowance you cannot make pension contributions to any scheme after April 6th 2012.

Should you or shouldn't you protect your pension?

As always, whether you should or should not protect your lifetime pension allowance is dependent on your individual circumstances.

However, you’re likely to be most affected by the reduced lifetime allowance if you have large personal pension funds in addition to NHS benefits.

If you have in excess of 36 years of service and have acquired a high level of Clinical Excellence Awards or in excess of 10 superannuated programmed activities, you’re probably within 3 to 4 years of age 60 or retirement, whichever is earlier.

If this is the case and you’re within striking distance of retiring, we recommend you seek advice from your financial adviser to avoid the potential of being stung with a 55% tax penalty post April 6th 2012!

Article by Mike Rawson
IFA to Doctors and Dentists at Legal & Medical Investments
August 2011