Higher Tax Free Cash Protected Transfers

Higher Tax Free Cash Protected Transfers.

As part of the drive towards pension flexible drawdown, there has always been one fly in the ointment:  Those with protected higher tax free cash entitlements.

Due to some quirks in tax rules that go as far back as pensions started before 1987 as well as some more recent pensions with protected benefits, many people were ill advised to transfer their pension to another pension scheme as the transfer itself would automatically mean that pension would now fall under new rules and the maximum tax free cash element would be 25%.  For some pre 1987 pensions, tax free cash could be 100% of the fund, for more recent pension schemes, some are entitled to higher amounts than 25% of the fund e.g.  33.33% of the fund.

HMRC has relaxed the rules on pension transfer and protected tax free cash higher sums for a limited period only – i.e.  If you wish to transfer to take advantage of new flexible drawdown rules both today and next year, you need to comply with the following:

Clients looking to take their benefits soon can now transfer to a new provider without losing their lump sum protection, so long as:

1. You can transfer now and protect your higher tax free entitlement on transfer
2. You must transfer 100% of the old pension in one transaction (you cannot part transfer)
3. The transfer must take place before 6^th April 2015
4. You must take all the tax free element before 6^th October 2015
5. Failure to do this will mean you revert to the usual 25% tax free cash lump sum rules
6. If you do not transfer at all, your tax free cash is still protected but you may not be able to access the new flexible pension rules.

Comment

A welcome relaxation but we cannot see that this will benefit that many people.  If it were extended and you could protect high tax free cash entitlement on an open ended basis then this would be extremely beneficial.  By forcing people into a window where they must take benefits by the 6^th October 2015, it may not be that advisable to do so, although for some it just may be the right option.  Contact us for high tax free entitlement advice.