Plan now to protect your pension

Feb 26, 2010

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The government has "cast a cloud" over tax relief on pensions, says John Cradden in The Sunday Times. News of the government's proposal to introduce a single 33% rate of tax relief on pension contributions and restrict the tax-free lump sum element of any pension to e200,000 (the rest will be taxed at 20%) has already prompted many high-earners either to maximise their pension contributions now or retire early. But while the proposals may not come in until 2014, plan now.

The age at which you can take the 25% tax-free lump sum will rise from 50 to 55 in April, says Nina Montagu-Smith in the same newspaper. Given it can take 40 days to unlock it, should you rush to access your lump sum now?

Think carefully, as it means you will have to 'vest' the whole fund – buy an annuity, or go into an income drawdown scheme. Neither option may match the performance of your existing fund.

But if your pension is your only source of cash and you have a mortgage to pay off, or if your tax-free lump sum stands to be well in excess of €200,000, it may be worth doing.

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