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Pension protection

Q:In February 2009, I applied for and was granted enhanced pension protection under the 2006 pensions legislation. Following the recent changes announced by the chancellor does this facility still apply or will the lifetime allowance (LTA) come into play on 1 April 2012 and cancel any advantage I might have gained from having enhanced protection?

A: The LTA places a limit on the tax-advantaged capital value of pension benefits that can be taken at retirement.

The LTA is currently set at £1.8 million but the government has proposed to reduce it to £1.5 million with effect from April 2012. Any benefits in excess of the prevailing LTA are subject to an excess tax charge, which is currently 55 per cent, if the excess is taken as a lump sum, or 25 per cent, if it is taken as a taxable pension income.

There will be some transitional protection mechanisms introduced for those individuals who already have accrued pension benefits in excess of the proposed £1.5 million limit, or have already arranged their affairs so that they will have exceeded the new £1.5 million limit by April 2012 (but will still be within the current £1.8 million limit).

The government has also suggested that individuals who are currently protected by primary protection and/or enhanced protection should continue to benefit from them

However, as the final rules for revising pension protection are yet to be announced, it is impossible to say what potential advantages might be gained by individuals who have pension protection in place.

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