Legal & General is warning that high-earners in group personal pensions could lose their fixed protection and be hit with a huge tax bill if their employer does not pass their last contribution to their insurer before April 6, 2012.
The lifetime allowance for tax-privileged pension saving will be cut from £1.8m to £1.5m from April 6.
Investors are able to lock in the £1.8m lifetime allowance, provided they have claimed fixed protection on the amount before the April 6 deadline.
However, fixed protection will be lost if further contributions are paid into the fund or benefits are accrued. If this happens, any pension savings above £1.5m will be taxed at 55 per cent.
Legal & General pensions strategy director Adrian Boulding says differences in HM Revenue & Customs and The Pensions Regulator rules mean savers in GPPs or group stakeholder arrangements who make a contribution in March could still lose their fixed protection.
He says: “If someone is in a GPP or a group stakeholder scheme, the March contribution deducted at the end of the month will be judged by HMRC according to the date at which the employer passes the money to the insurance company.
“If the employer sends it later than April 5, 2012 – and The Pensions Regulator is happy for employers to send pension contributions over any time up to the 19th of the month – then it will be treated as a contribution in the 2012/13 tax year, with a disastrous immediate loss of fixed protection.”
AWD Chase de Vere head of communications Patrick Connolly says: “This would be disastrous for clients, who could face a six-figure tax bill as a result.”