Standard Life claims to have spotted another quirk in A-Day rules which will cause people consolidating multiple pension pots to lose tax- free cash.
The problem, which it says has been confirmed by Revenue & Customs, arises where a person has a protected tax-free lump sum in one scheme and a basic 25 per cent tax-free lump sum in another.
Marketing technical manager Andy Tully says this is common, with more than half of the members in its occupational pension schemes having more than 25 per cent tax-free cash at A-Day.
Many of these people also have other pensions, such as free standing AVCs or personal pension schemes, which pay a 25 per cent lump sum.
Tully says if the person decides to transfer one of these contracts to the other or amalgamate them both into a new scheme such as a Sipp, they will lose tax-free cash unless they pay an additional contribution into the new scheme.
He says: “Tax-free cash sums are one of the major benefits of pensions and people do not want to lose out. It is vital that advisers are aware of the nuances surrounding tax-free cash protection on transfer. Fortunately, paying an additional contribution to the new scheme often solves the problem.”