Pension ‘protection’ deadline announced
Doctors may have limited time to safeguard tax-free lump sum.
By Edie Bourne
Doctors are being urged to be aware of a new deadline announced by HM Revenue and Customs (HMRC) to apply for ‘protection’ on the amount of tax-free cash they can take from their NHS
pension.
The lifetime allowance (LTA), which limits tax-free pensions savings, will officially be abolished next month (April) and this means there will no longer be a tax charge on overall pensions’ savings in excess of the available lifetime allowance.
But specialist financial planners Cavendish Medical has warned there will still be a cap on the ‘maximum pension commencement lump sum’ – or ‘tax-free cash’ – available when benefits are drawn for those without ‘protection’ schemes in place.
This limit is currently £268,275 – 25% of the previous lifetime allowance.
Those with pension protection schemes already in place, such as fixed protection or individual protection, have secured a greater LTA and therefore will also benefit from a larger tax-free cash amount, even though the LTA has been removed.
Two types of protection
HMRC has now announced that the deadline to apply for two types of protection – namely fixed protection 2016 and individual protection 2016 – will be 5 April 2025.
George Uglow, chartered financial planner at Cavendish Medical, explained: ‘Pension protection schemes are complicated, with multiple variations.
‘Each time the Government has reduced the lifetime allowance limit, it has tended to introduce a new protection scheme that would enable pension savers to safeguard their former savings limits, at the previous lifetime limit.
‘Given that there have been several changes to the pension rules, this means we now have many different versions of the schemes in operation and each one has a different set of criteria for eligibility.
‘It is important to know the rules, understand how your pension is valued for lifetime allowance purposes when applying for the protection and also how the protection is maintained.’
Mr Uglow told Independent Practitioner Today that in some circumstances the protection can be lost if pension contributions continue or if there is further benefit accrual, for example, so it was important to take advice and remain aware of the ever-changing rules.
‘For doctors who think that they could be eligible for a form of protection, it could be useful to make an application in order to safeguard more of their lump-sum, even more so given the deadline of April 2025.
‘Do seek expert advice – it is not an easy matter to get right and the devil is in the detail.’