Personal Pension  

‘AE could affect savers on cusp of £1.5m LTA’

The retirement planning manager for Skandia said employees could potentially lose the benefits of fixed protection of up to £1.5m if they forgot to opt out of auto-enrolment schemes.

He said someone who had accrued enough pension savings to approach the new lifetime allowance of £1.25m, which will come into force from April 2014, could become subject to a higher tax charge from just one auto-enrolment contribution.

Mr Walker said: “As much as £250,000 of a person’s savings could be hit by a 55 per cent tax charge if they are near the lifetime allowance threshold unless they take immediate action when asked to join a scheme.

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“This could particularly affect people who may have retired and then returned to part-time work. Affected people need to remember that they will be re-enrolled every three years.”

He said a very small amount of money could affect a significant amount of pension savings. Mr Walker added: “People only have 30 days to opt out and we believe up to £150bn in pension assets could be affected by what is an unintended consequence of auto-enrolment.

“The problem is that people are in employer schemes, and believe their employer will spot an issue and sort it out for them. Unfortunately this is not the case, and they need to seek advice.”

Adviser View

Graeme Mitchell, managing director of Scottish Borders-based advisory firm Lowland Financial, said: “This could be tricky, especially for those who have retired on a substantial final salary scheme. Ultimately those in this situation should get advice.”