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Thousands lose lifetime allowance protection since A-Day

Over 12,000 investors have notified HM Revenue and Customs they have lost one of the various forms of lifetime allowance protection introduced since ‘A-Day’ in 2006.

Since the pension tax simplification regime came in to force, four separate protection rules have been created as transitional measures to minimise the impact of lifetime allowance cuts – enhanced protection, fixed protection (2012), fixed protection (2014) and fixed protection (2016).

A Freedom of Information request from AJ Bell shows that around 12,000 savers have reported breaching their protections since A-Day.

This can happen for a number of reasons, including where savers voided the terms of their protection when auto-enrolment came into force and failed to opt out of their workplace schemes.

AJ Bell says there has been a notable increase in recorded breaches since auto-enorlment was introduced, with a particular spike since 2017 as more small businesses were bought into the net.

However, breaching any other terms and conditions can also invalidate protection, and result in retrospective tax bills.

AJ Bell senior analyst Tom Selby says: “In a recent first-tier tribunal ruling, the judge decided a man who had accidentally voided his lifetime allowance fixed protection by failing to cancel a contribution standing order should have the protection reinstated.

“If HMRC is unable to get the ruling overturned at appeal, it may mean thousands of pension savers who have had their protection certificate revoked are knocking on its door asking for their money back.”

“Whether it is doctors being hit with tax bills for breaching the annual allowance taper or savers losing fixed protection after contributing to a pension, it’s clear the inherent complexity of the pensions system is causing problems for higher earners.

“The government should review the pension tax regime and consider simpler alternatives which don’t unnecessarily hamper those doing the right thing and saving for retirement.”



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There are 5 comments at the moment, we would love to hear your opinion too.

  1. Terry Mullender 11th April 2019 at 3:49 pm

    And what about Primary Protection? The Lifetime Allowance makes no sense as long as the Annual Allowance is in force and is a blatant tax grab on investor growth.

    Perhaps all those Civil Servants at HMRC who are members of the Civil Service Occupational Pension Scheme (DB) need to revise the 20 x multiple (when assessing benefits against the LTA) upwards to say 30 to bring it more into line with defined contribution schemes. I somehow dont see them rushing to do this…..

  2. HM Govt:

    We want you to save.
    AE is a great success.

    But only save in penny numbers and if you save too much we will stop you and tax you. We can’t have inequality – so our plan is that everyone has a naff AE pension, and overall we can eventually save on the benefits bill.

  3. For those who apply for and are granted LTA protection but then fail to cancel ongoing contributions by SOM/DDM, I have no sympathy.

    Also, employees who opt out within a month of their employer auto-enrolling them can get back any money already paid in, thereby negating the breach.

    Therefore, those who have obtained LTA protection need to have their wits about them to ensure they don’t lose it through inaction. Advisers who fail to warn them of this in letters writ large may be held liable for the consequences.

  4. Andrew Cartlidge 12th April 2019 at 4:15 pm

    A J Bell are correct in stating that pensions in general and the lifetime allowance in particular have become too complicated. More so than ever!! After all the public resources devoted to ‘pension simplification’, the mess the government has since created, largely for the sake of an opportunistic revenue grab, is unforgiveable. Chancellors have not thought through their policies and HMRC prefers complexity to simplicity.

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