Enhanced Protection and Transfers Don’t Mix
If you have Enhanced Protection be very wary of pension transfers. A pension transfer can easily result in a “relevant benefit accrual”. Testing whether this is the case for you is essential before you proceed with any pension transfer – you (or your adviser) has to ask the scheme administrator because the test that must be carried out requires information about your pension rights at 06 April 2006.
If you lose Enhanced Protection all your private pensions will have to be valued against the lifetime allowance to which you are entitled whenever you take benefits. Your benefits can be affected in two ways. First, the maximum tax-free Pension Commencement Lump Sum you can receive may be reduced. Second, a lifetime allowance charge may be payable – this is paid out of the assets held to pay your benefits and as a result your benefits will be reduced. Furthermore, the scheme administrator might be less than fair when deciding how much your pension will be reduced in order to pay the lifetime allowance charge.