interactive investor welcomes clarity over how the new pension rules apply to those with existing lifetime allowance protections under the old rules.
interactive investor welcomes the lifetime allowance guidance newsletter issued today, which provides more clarity on how the new pension rules apply to those with existing lifetime allowance protections under the old rules.
Alice Guy, Head of Pensions and Savings at interactive investor says: “Under the lifetime allowance rules, some pension savers have been granted a higher lifetime allowance and, in some circumstances, a higher tax-free cash percentage. These protections allowed pension savers to both protect their existing pension pot when the lifetime allowance was reduced and if applicable maintain a higher tax-free cash percentage, which is higher than the current 25%.
“The HMRC guidance clarifies the rules for pension savers with these existing protections. They will be able to keep both types of protection as long as it was applied for before 15 March 2023 and will be able to continue paying into their pension without losing them from 6 April 2023. However, for those with tax-free cash percentage protection who choose to use the protection, the entitlement will be capped and based on the enhanced percentage of their pension pot value on 5 April 2023. For protections applied for and granted after 15 March, different rules will apply.
“It’s important to remember that the existing lifetime allowance rules remain in place until 6 April 2023. This means if you breach the lifetime allowance before 6 April, you’ll still potentially owe lifetime allowance charges and could forfeit any existing tax-free lump sum protections.”
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