Pension savers risk huge tax bills on their protected cash if they sign up for their employer's death in service benefits, according to AWD Chase de Vere.
The protected cash, registered before A-Day, could be in breach of tax laws due to the way some employers treat life insurance, and investors should consider taking out their own policy.
On 6 April 2006, the Government introduced the lifetime allowance (LTA), which set an upper limit on total pension contributions, after which they are heavily taxed. Any pension cash accrued before this date and in excess of the LTA could be protected, though the rules prevent these savers from making any additional pension contributions.
However, David Smith, director of AWD Chase de Vere Consulting, says many employers classify death in service benefits as a pension contribution, putting protected pensions at risk.
"We're seeing a worrying trend for people who have protected their pension pots to fall foul of the rules when joining death in service life insurance schemes," he says.
"It comes as a shock to people to find that they will be facing a potentially huge pension tax bill just because they signed up for life insurance which they could easily have bought themselves outside their employer's pension scheme."
AWD Chase de Vere says it is taking urgent steps to make pension savers aware of the problems, and says anyone with pension protection should seek immediate financial advice before taking on any additional employer benefits.
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