Hornbuckle urges IFAs to check benefits of fixed protection

IFAs must review their clients’ enhanced pension protection to see if they could benefit from switching to the new fixed protection, Hornbuckle Mitchell says.

Enhanced protection became available after A-Day in 2006, when the lifetime allowance (LTA) for pension contributions became £1.8m.

It protected investors whose pension funds may exceed £1.8m through investment growth from punitive tax charges, on the condition they made no more contributions.

However, some investors could revoke their enhanced protection, make more contributions and then reapply for fixed protection, Stewart Dick, head of sales at Hornbuckle said.

"There is now a window for some of those with enhanced protection but funds worth less than £1.8 million to revoke it, make additional contributions perhaps using carry forward rules, and receive up to 50% tax relief, then to take fixed protection from April.

"This could be particularly useful for those nearing retirement or whose fund values have been hit by volatile financial markets."

Dick said fixed protection can also have advantages for clients focussed on their tax free lump sums.

He said fixed protection allows tax-free cash of 25% of the fund up to £1.8m, whilst people with enhanced protection but no lump sum protection will see their lump sum fall to 25% of £1.5m from April.

In July, rival SIPP provider AJ Bell published figures from Her Majesty's Revenue and Customs (HMRC) pointing out the inequality between pension savers with primary and fixed protection and urged the Revenue to rectify the situation.