Pensions World

More than 18,000 pension investors are at risk of loss of protection from auto-enrolment contributions.

Freedom of Information figures obtained by platform provider A J Bell reveal that 18,574 individuals are at risk of losing protection of their pension benefits when new auto-enrolment rules come into force from October 2012.

Enhanced protection prevents individuals from facing significant tax charges if their pension benefits are valued at more than the lifetime allowance when they take benefits (from 6 April 2012 the lifetime allowance drops from £1.8m to £1.5m). Individuals lose enhanced protection where any contributions are paid to pension schemes. The new auto-enrolment rules require individuals to opt-out of pension schemes every three years to prevent contributions being paid, increasing the likelihood that contributions will inadvertently be paid in respect of those holding enhanced protection.

Commenting on the issue, Billy Mackay, marketing director at A J Bell said, “There is an element of personal responsibility here. Anyone holding enhanced protection needs to take measures to make absolutely certain they opt out of being auto-enrolled as the financial consequences could be catastrophic”.

Mr Mackay continued, “The numbers involved make a clear case for the Government taking basic steps to prevent significant losses amongst those holding enhanced protection. Exempting those with enhanced protection from being subject to auto-enrolment is an option, but many individuals may not want their employer to know that they hold this protection.

He concluded “An alternative would be to allow enhanced protection to be retained provided contributions do not breach a certain threshold, say, £1,000. Very few of those holding enhanced protection will make contributions of up to £1,000 as the incentive is not there, so the impact on the Treasury would be minimal. Conversely the impact of this policy for anyone who holds enhanced protection and inadvertently allows themselves to be auto-enrolled could be significant.”

www.ajbell.co.uk