Govt removes pensions transfer trap
The Government has released new regulations that allow people to keep the protection of their existing regular contributions if they transfer to another pension scheme, under the anti-forestalling rules.
Prior to this change, pension savers who benefited from protection lost this if they transferred.
Under the Budget’s draft anti-forestalling measures, annual contributions are capped at £20,000, although savers who have been making quarterly or more frequent contributions above that can continue.
But if a client transfers a pension to a new provider the contribution history is lost and they will be taxed 20 per cent on contributions over £20,000, even if they have regularly saved more than this amount.
Money Marketing flagged up the issue in June.
AJ Bell marketing director Billy Mackay says: “Pension savers have been prevented from transferring between pension schemes for fear that they would lose protection of their regular contributions.
“We have been calling for this issue to be resolved since the Budget in April 2009 and welcome the new rules which have been set out in The Special Annual Allowance Charge (Protected Pension Input Amounts) Order 2010.”
“It is good news that the Government has listened to the pensions industry on this issue. We hope that the Government also take note of our calls to simplify the framework for restricting tax relief for higher earners by simply reducing the annual allowance.”