However, only 4,000 people have taken advantage of the special rules in the past tax year .
The protections rules allow them to protect themselves against cuts in the lifetime allowance for pension tax relief since it was first introduced in 2006, according to the information obtained by actuarial firm LCP.
The actuarial firm said this issue was likely to become more important following the announcement in the March Budget of a five year freeze in the value of the Lifetime Allowance at its current level of £1,073,100.
Each time the Lifetime Allowance is cut, the government offers people the chance to protect themselves against the cut in recognition that people will have made financial plans on the basis of the higher limit.
Fixed protection allows people to lock in the ‘old’ LTA of £1.25m. However, this is on strict condition that no further pension contributions are made. Someone who chose Fixed Protection 2016 but who was subsequently automatically enrolled into a workplace pension and did not opt out would invalidate their protection.
Individual protection is valid for those who already had pensions valued at over £1m when the LTA was cut and allows them to lock in a personalised LTA set at whatever their pensions were worth at the time. A key feature of individual protection is that it cannot be lost (apart from exceptional circumstances such as following a divorce), and savers can continue saving more into a pension without losing the protection.
Where someone dies and an LTA charge is established during the process of winding up an estate, it may be possible for their executors to apply posthumously for LTA protection. According to LCP, in some cases this could result in a substantial tax saving.
Steve Webb, partner at LCP said: “Limits on pension tax relief have been cut repeatedly in recent years and savers who planned on the basis of much higher limits can find themselves on course for large tax bills when they start to draw their pensions.
“Anyone whose pensions already exceed the Lifetime Allowance or who thinks that they might to do so in future should check to see if applying to HMRC for protection would be to their benefit.”
Over 27,500 people have so far opted for individual protection, while over 44,800 have locked in fixed protection, according to the FoI response.
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