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Forgotten pension pots, further contributions and AE

This article is part of
Guide to Pensions Lifetime Allowance

Ian Price, divisional director of pensions and consultancy at St James’s Place Wealth Management, says understanding exactly what pension pots your clients have is particularly important to calculating the effect of the lifetime allowance reduction.

However, Mr Price says your clients will have three years to apply for individual protection (i.e. up to 5 April 2017), which should give them enough time to find their scattered pension pots.

If a client has fixed protection then Mr Price says when they make a contribution they will have broken fixed protection. He says it is therefore important to understand where clients various pots are to ensure no further contributions can be made that would cause the protection to be revoked.

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In contrast, Mr Price says the amount protected under individual protection is not affected if your clients make pension contributions after 5 April 2014.

Under fixed protection 2014, John Lawson, head of policy at Aviva, says forgotten pension pots may impact a decision on whether or not to apply.

As a valuation of benefits is not needed, Mr Lawson says there are no further consequences provided they are not paying contributions into the forgotten pot or there is no further benefit accrual under it.

For individual protection 2014, Mr Lawson says if the individual has forgotten to include some pension pots in their valuations and the application has been sent to HMRC the draft legislation indicates that they will be able to rectify this and HMRC will issue a revised protection certificate.

However, if the individual has not registered before the deadline of 5 April 2017, for example because the value of the benefits that they had remembered was less than £1.25m, Mr Lawson warns they will have lost the opportunity when the forgotten pots come to light.

Further contributions to money purchase arrangements and benefit accrual under defined benefit arrangements do not affect this protection, he adds.

Martin Tilley, director of technical services at Dentons, says advisers and their clients who have applied for protection need to beware of automatic enrolment.

He says: “An individual who meets the eligibility criteria for auto enrolment will be enrolled into their employers scheme and such enrolment will invalidate fixed or enhanced protections.

“The individual must consider opting out at outset and at each triennial anniversary where they will otherwise automatically be opted back in.”