Pensions  

AE could push people over LTA limit despite protection

AE could push people over LTA limit despite protection

People who have accrued a significant pension but are later automatically enrolled into a pension scheme could be putting their lifetime allowance protection at risk, an adviser has warned.

Craig Harrison (pictured), managing director of London-based Creative Wealth Management, pictured, said he had spoken to one professional indemnity insurer who was worried about possible liabilities.

For example, a person could have LTA protection set at the historically higher limit than the current LTA. If this person returns to work or changes employment, and is automatically enrolled into a pension scheme which pushes them over the limit, he could lose out.

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However, Mr Harrison said there were question marks about whether the employer, its financial adviser or the employee would be liable for any losses.

Mr Harrison said: “Each time there is a fall in the lifetime allowance the government comes out with this protection.But the issue with auto-enrolment is that if someone enrols then they could blow their allowance if they have a larger pot.

“I would expect people who have got lifetime allowance protection to be more well-informed and to take advice, but you cannot speak for everyone. Some people might have lost track of the legislation.”

The lifetime allowance is currently £1.25m but chancellor George Osborne announced in this year’s Budget it would be reduced to £1m from April 2016.

The government has recently published proposals which remove the requirement to automatically enrol and provide information to employees with tax-protected status.

Earlier this year the department for work and pensions consulted on proposals for tackling this issue. In a comment following the consultation the DWP said: “The government agrees with the majority of respondents that the onus should be on the worker to notify their employer of their tax-protected status. We also want to provide some flexibility for workers and employers and so we are not minded to change from the employer having ‘reasonable grounds’ to believe their employee has tax-protected status.”

Adviser view

Tom Dean, a chartered financial planner with London-based Plutus Wealth Management, said: “For the sake of one small monthly contribution, the client could suffer a considerable amount of damage, so it is something that you have to keep on top of.”