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Pension protection

Q: In February 2009 I applied for and was granted enhanced pension protection under the 2006 legislation. Following the tax relief restrictions announced last autumn, does this facility still apply or will the lifetime allowance (LTA) come into play on 6 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.

Currently the LTA is set at £1.8 million but the government has proposed that it is reduced to £1.5 million from 6 April 2012. Any benefits in excess of the prevailing LTA are subject to an LTA excess tax charge. This is currently 55 per cent if the excess is taken as a lump sum or 25 per cent if the excess is taken as a taxable pension income.

There will be some transitional protection for individuals who have already accrued pension benefits over the proposed £1.5 million limit, or have already arranged their affairs so that they will have exceeded it by 6 April 2012 (but who will still be within the current £1.8 million limit).

The government has also suggested that individuals who currently have primary protection (PP) and/or enhanced protection (EP) should continue to receive these protections.

However, as the final rules are yet to be announced it is impossible to say what potential advantages might be gained by individuals who already have PP and/or EP.

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