The abolition of the lifetime allowance (LTA), announced by chancellor Jeremy Hunt on 15 March, is accompanied by some new rules published in the Finance Bill on 23 March.
From 6 April, pension savers with enhanced protection and fixed protection registered before 15 March will be allowed to pay in new contributions to their pension plans and keep their existing protected tax-free cash entitlement.
But under the new rules, the maximum amount of protected tax-free cash someone with enhanced protection can take will be restricted to the amount they could take on 5 April.
Rachel Vahey, head of policy development at AJ Bell, said: “This Finance Bill is the first piece of legislative machinery needed to change the lifetime allowance rules for pensions. The Bill also has new rules for those who have previously protected a higher lifetime allowance and higher tax-free cash amount. It’s worth taking a close look at the detail.
“Those with enhanced protection will be able to take advantage of the new higher annual allowance, allowing them to top up their pension without fear of a tax hit. But if their protection certificate shows a tax-free cash percentage, this entitlement will be frozen on 5 April.
“In effect, it means that none of the future growth in their pension pot, from both contributions and investment growth, can be withdrawn as tax-free cash in the future.
“These changes still allow pension savers to supercharge their pension pots over the next few years. But this crucial rule freezes the amount they can withdraw tax-free, with HM Revenue & Customs (HMRC) preventing those with enhanced protection from completely exploiting the new regime.”
