HMRC considers the removal of fixed protection barriers for pensions

HM Revenue & Customs (HMRC) is consulting on the possibility of changing the way that savers with pension pots worth more than £1m can protect their money.

The tax authority is considering a removal of the requirement for a saver to apply for fixed protection, as well as changing the deadline for those who have accumulated a pension pot worth more than £1m and want to apply for individual protection.

Fixed protection gives savers who have exited a scheme, and have a pension pot worth between £1m and £1.25m, the chance to protect the value of their pension pot at the higher level, because they are unable to receive any further benefits in that scheme.

Under current rules, anyone who wishes to apply for this form of protection has to do so before the tax year end that it starts in.

Individual protection, on the other hand, allows savers who believe that their pensions will be worth more than the lifetime allowance, when they start to receive it, an allowance based on the value of their personal pension.

Anyone who intends to apply for individual protection must to do so no later than three years after the tax year of the year it applies in.

To highlight an example of this, anyone with a pension pot worth £1.4m can get individual protection on that amount based on the 2014 limit of £1.5m, rather than the existing £1.25m limit.

It is expected that the full process for how to apply for protection will be published by the end of this summer.

With the new lifetime allowance limit of £1 million coming into effect from April 2016 – a cut from the current £1.25 million cap – those that are going to be affected by the change are being urged to seek professional advice, to ensure they maximise the money they can access from their pension fund.

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