The last year has seen a decline in the number of people protecting themselves against breaching the pension lifetime allowance.

The current lifetime allowance stands at £1,073,100 and there are two schemes, offered by HMRC, allowing savers to protect their pension savings from the April 2016 reduction of the lifetime allowance to £1 million.

The two HMRC schemes are individual protection and fixed protection and the table below gives details of each:

 

 

 

 

 

 

 

 

 

 

 

 

However, a recent Freedom of Information request by consultancy firm LCP revealed that, although 325,000 people have used these rules to protect themselves against the cuts to the lifetime allowance, only around 4,000 people registered for protection in 2020/21.

As a result, some who could benefit from these protections may face unnecessary tax bills. This issue is likely to become even more important since the lifetime allowance has now been frozen at its current rate until 2026.

Steve Webb, the former Pensions Minister, said:

“Limits on pension tax relief have been cut repeatedly in recent years and savers who planned on the basis of much higher limits can find themselves on course for large tax bills when they start to draw their pensions.  

“Anyone whose pensions already exceed the lifetime allowance, or who thinks they might do so in future, should check to see if applying to HMRC for protection would be to their benefit.”

We can help

Talk to us about whether you are eligible to use these schemes to protect your lifetime allowance; give us a call today on 01483 205890.