In the run-up to 6 April 2006, those pension savers who are already over the £1.5 million pension threshold are recommended to seek professional advice.
This advice can help them to shield their savings from the Lifetime Allowance charge or help to maximise tax breaks under the current rules.
It is possible to register A pension fund value that has been built up before that date to protect it against the Lifetime Allowance charge. Pensions savers have until April 2009 to do this, although the sooner you understand your options the better you can plan accordingly.
If you think your fund is near or has reached the limit, you need to get a valuation carried out. This is essential if you are then to consider putting protective measures in place in order to protect the fund from the allowance charge.
Most experts agree that, to ensure you have a plan in place to protect your savings in preparation for pension simplification, you will almost certainly need advice. Struggling to do it yourself could result in a tax bill that could have been avoided.
Anyone with a pension pot worth more than £1million will almost certainly need guidance.
An advisor will be well-placed to guide you through this rather complicated area, but generally speaking, there are two levels of protection available:
So-called 'primary protection' is available to pension funds over the £1.5m lifetime limit on A Day, i.e. 6 April 2006.
Going for primary protection will shield the value of the pension you have already built up and can potentially allow it to continue to grow in line with the increases in the lifetime limit, without triggering the recovery tax charge.
This is available to any fund regardless of its size. It can protect not only the current value of your pension savings, but also the full value of future investment returns, without incurring a tax penalty.
This is on the assumption that no further contributions are made or, if you are in a final salary scheme, that your benefits do not increase above certain limits. It also assumes that no new benefits are built up in respect of your employment after A Day.
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