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High-earners could face auto-enrol tax bills

The Government is facing calls to allow high-earners to permanently opt out of automatic enrolment due to concerns that some could face six-figure tax bills if they inadvertently void their fixed protection.

The lifetime allowance for tax-privileged pension saving will be cut from £1.8m to £1.5m from April 6, 2012.

Investors are able to lock in to the £1.8m lifetime allowance, provided they have claimed fixed protection on the amount before the April 6 deadline. The election form for fixed protection will be available from August but fixed protection will be lost if further contributions are paid into the fund or benefits accrued.

If this happens, any pension savings above £1.5m would be taxed at 55 per cent.

Hargreaves Lansdown head of pensions research Tom McPhail says people who have claimed protection could be “walloped” with a massive unexpected tax bill as a result of auto-enrolment.

He says: “There is a big issue on auto-enrolment for anybody who has any sort of protection on their pension fund. They could jeopardise that protection because a contribution is made automatically on their behalf. There is a strong argument for having a very specific exemption under auto-enrolment, so anyone who has protection can opt out permanently.

“We are not talking about a huge number of people, it is maybe in the thousands, but if they bust their protection they could be walloped with a tax charge running into hundreds of thousands of pounds.”

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Comments

There is one comment at the moment, we would love to hear your opinion too.

  1. Richard Brydon 28th July 2011 at 6:33 pm

    I don’t understand. Why don’t they just opt out like many will do. It seems obvious to me and a bit pointless to comment on. Have I missed something?

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