Pension savers have until April 5 to protect their pension benefits from the 55 per cent tax charge applicable if they exceed the lifetime allowance.
The pre-Budget report flagged up the importance of protection by freezing the allowance at £1.8m from April 2010 to at least 2016, which will mean that more people will face the higher-tax rate.
Primary protection is available to people whose pension benefits were worth more than £1.5m on A-Day. They are given a personal allowance, depending on the size of their pot in April 2006, which increases at the same rate as the lifetime allowance.
Meanwhile, enhanced protection is available on pots of any size and protects anything over the lifetime allowance although only individuals who have not made any contributions since A-Day qualify.
Intelligent Pensions technical director David Trenner says: “Many people have already applied for protection but those who put off doing so are fast running out of time and to make matters worse the PBR announcement significantly increases the number of people who will be caught by the 55 per cent tax charge.”
AJ Bell marketing director Billy MacKay says: “The PBR announcement could bring people with reasonable pension funds over the exempt amount, not just the mega-wealthy. We know the lifetime allowance is frozen until 2016 but nobody knows what the Government will do after that date so it makes sense for people to apply for protection but obviously they need to get in quick.”
Fishburn Solicitors partner Harriet Quiney says advisers who fail to flag up these options could face complaints.
She says: “Advisers may forget to tell clients to stop making contributions, which would result in a tax hit, or they might forget to remind their clients to apply for the protection before the deadline. It might happen that in April complaints start to come in.”