Enhanced Protection Pension Tax Shock

Enhanced Protection Pension Tax Shock

First Actuarial has warned that people with enhanced protection on their pension savings could trigger penal tax charges by being auto-enrolled into personal accounts.  

The firm is calling on the Government to change the rules so that saving in a personal account does not affect enhanced protection, which protect people from a 55 per cent tax charge if they go over their lifetime allowance.  Savers who have registered for enhanced protection will see it invalidated by being auto-enrolled as it will be classed as a new pension contribution.

Our view

In 2012 new style compulsory pension accounts start forcing people to join and save in a pension scheme.  This means that people with enhanced protection on an existing pension scheme who are still working will be auto-enrolled into personal accounts and unless they act quickly and opt out they will lose this protection and benefits.  

This, in some cased will means either they will suffer a huge cut tax free cash entitlement or even a 55 per cent tax penalty if they continued to draw the cash sum entitlement.

This is a complex area of financial planning advice and you need professional advice.

Useful links:

Learn more about Enhanced Protection and related topics in the Pensions Adviser Channel

Request expert financial advice now

Purchase guidance on financial planning in the Money Shop 

Back to News Summary