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HMRC publishes new lifetime allowance pension protection rules

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HMRC has published details of a new individual protection regime which will allow people with pension savings worth more than the new £1.25m lifetime allowance to protect the value of their pot and continue contributing to a pension scheme, subject to a charge.

Chancellor George Osborne confirmed the Government will cut the lifetime allowance from £1.5m to £1.25m from April 2014 in December. A charge of up to 55 per cent applies on assets above the limit.

At the time, the Government said it planned to introduce two new protection regimes – fixed protection and individual protection – to ease the transition to the new savings limit.

The proposed fixed protection rules will allow individuals to lock in to a lifetime allowance of £1.5m, provided they do not make any further pension contributions and apply for the new protection before 6 April 2014.

Under the individual protection regime, savers will be able to apply for a personalised lifetime allowance, up to a maximum of £1.5m, based on the value of their pension on 5 April 2014.

Investors will have three years to apply from 6 April 2014. Savers will still be able to contribute to their pension, subject to lifetime allowance charges.

HMRC says the option will attract people who receive large employer pension contributions which cannot be converted into other benefits, like higher pay.

HMRC says: “Offering the option of individual protection as well as fixed protection will provide greater flexibility for this group to choose the most appropriate protection regime for their circumstances.”

Syndaxi Chartered Financial Planners managing director Robert Reid says: “Individual protection will be a useful option for a small number of investors.”

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