Tax advice of the week: A hidden gem for retirees
If you have an occupational pension scheme, here's some good news you may have missed from this year's budget changes.
Thousands of employees with occupational pension schemes may be able to "claim a bigger tax-free lump sum on retirement", says Jessica Bown in The Sunday Times. Skandia, the pension provider, claims to have found a "hidden gem" in amongst "the technical papers issued by HMRC on the back of the budget changes".
Since A-Day (6 April 2006), the level of tax-free cash available to members of such schemes has been set at a maximum of 25% of the value of their fund.
Pre A-Day members of occupational schemes, however, were allowed to protect the tax-free cash rights they held at A-Day that were greater than 25%. It is in these cases that the tax-free entitlement can increase further.
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Perhaps the best news is that the protected entitlement is automatically increased by the 20% increase in the Lifetime Allowance up to 6 April 2012 (it went up from £1.5m to £1.8m), regardless of how well the fund has performed since. Secondly, it is increased by 25% of any positive growth in the fund since A-Day.
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