Protecting your pension savings

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Julia Grimes
Published: 13 Sept 2016 Updated: 28 Jan 2017

As the old saying goes; there are only two certainties in life - death and taxes. Whilst no one can alter these, unless you have a genie to hand, there are steps you can carry out to ensure that your pensions and investments are structured in a manner to avoid having to pay unnecessary taxes during your lifetime. Indeed, not many would voluntarily opt to pay more tax than is actually required but this could be the case if you fail to take the appropriate measures in respect of your financial affairs and many may inadvertently fall into this category. Gary Smith, financial planner at Tilney, gives his top tips to ensure you don’t fall into the latter category.

“One such area of planning where you can potentially avoid having to incur unnecessary taxes is in relation to the pension lifetime allowance (LTA) and the 55% punitive tax charge that will be incurred on amounts exceeding the allowance when benefits are taken. The LTA has now been set at the totemic figure of £1million, a massive reduction from the £1.8m level it was at in 2010.

“Whilst many don’t believe they’ll ever be affected by this tax charge, those who currently have a pension fund of £500,000 and are 10 years away from taking pension benefits could exceed the £1m limit if they achieved an annual investment return of 7.5% or more with no further contributions being made. Furthermore, those who are lucky enough to still be members of a defined benefit scheme would exceed the £1m lifetime allowance if they are due to receive an initial pension that exceeds £43,500 and a lump sum equivalent to 3 times the pension at retirement.

“It is possible to avoid and/or reduce any future lifetime allowance tax charge by proactively managing your pension arrangements prior to retirement and during the decumulation phase of retirement. For those who could be impacted by the Lifetime Allowance, HMRC have introduced two new forms of protection; these being ‘Fixed Protection 2016’ and ‘Individual Protection 2016’. These protections are different and it is possible to apply for both forms, with the appropriateness of the protection dependent upon your personal circumstances.

“Fixed Protection 2016 will enable a lifetime allowance of £1.25m to be retained but, in exchange for securing this protection, no further pension funding can be made after 5th April 2016. If pension contributions have been made during the current tax-year, then this protection will not be available to you – you have missed the boat.

“Individual Protection 2016 is only available to those who had pension benefits that exceeded £1m on 5th April 2016 and, unlike Fixed Protection, those who secure this protection will still be permitted to make pension funding moving forward.

“HMRC have now launched the online system to apply for these two new protections and the application process is very straightforward and can be accessed via their website.

“Unfortunately the lifetime allowance is not the only potential tax charge that your pension provision could be subject to, with the introduction of the tapered annual allowance for high earners from 6th April 2016. Those who are impacted by this change could see the amount that can be paid into their pension reducing to only £10,000 per tax-year, down from £40,000 last year.

“This change, coupled with the potential removal of tax relief in the future, means making use of your annual allowance and carry forward allowances has never been more important, especially as pensions remain one of the most, if not the most, tax-efficient method of saving towards retirement. In some instances a tax charge can’t be avoided, but it is important to provide an understanding of what impact the tax charge would have on retirement benefits.”

To discuss this or any other financial planning topic please contact Gary Smith on 0191 269 9971/


Important information:

The value of investments, and any income derived from them, can go down as well as up and you may get back less than you originally invested. This press release does not constitute personal advice. Past performance is not a guide to future performance.

Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change. Please note we do not provide tax advice.

If you are unsure of your options you should seek professional financial advice or visit


This release was previously published on Tilney Smith & Williamson prior to the launch of Evelyn Partners.