Fidelity International has launched a lifetime allowance guide in response to growing customer demand.
The lifetime allowance is set to fall from £1.25m to £1m in April and as a result customer calls to the firm grew steadily through October, with volumes ending the year at levels four times higher than those at the beginning of the quarter.
Fidelity’s guide is aimed at concerned customers and those identified as potentially at risk from falling tax allowances come the spring.
It will explain who is likely to be impacted by the changes, how to calculate the value of an individual’s pension and the steps that those affected can take to minimise their tax bills.
Richard Parkin, head of retirement at Fidelity International, said: “Without doubt, £1m is a lot of money for one person to acquire in pension saving, but for those people who have been in a pension scheme for a long time – particularly those with final salary pensions – breaching the lifetime allowance could be surprisingly easy.
He added that customers need to not only look at what they have now, but also think about the investment growth on all their retirement savings.
“A well-invested DC scheme, coupled with one or two final salary schemes, could put people close to the limit. We would urge anyone who is unsure to speak to an expert to assess their situation as there are things they can do – for example apply for protection of their current savings or look at their withdrawal strategy.
“While there is no immediate rush to apply for protection, certain protections may require pension contributions to be ceased in March so it’s advisable to not leave this too long.”
The consequence for not protecting funds could be severe, as any excess will trigger a 55 per cent charge for lump sum withdrawals, or 25 per cent if taken as income.
In order to shield excess funds from the tax levy, savers would need to apply for individual or fixed protection. While there is no application deadline, HM Revenue and Customs recommends to submit before crystallising benefits.
Fidelity previously found that the number of pension holders taking action to avoid the reduction in lifetime allowance before April rose fourfold in the last six months of 2015,
In December, nearly one in seven customers used tax-free cash to trigger their assessment against the lifetime allowance under current rules, as opposed to the ones set to be introduced in April.
ruth.gillbe@ft.com
