Over 325,000 people have taken advantage of rules to ‘protect’ themselves against cuts in the lifetime allowance (LTA) for pensions tax relief since its introduction in 2006, although recent applications have slowed, according to a freedom of information request obtained by LCP.

The data revealed that only around 4,000 people have applied for the protections in the past year, prompting concerns that some savers may be missing out and could face unnecessarily high tax bills as a result.

The consultancy also warned that the issue is likely to become more important following the March 2021 Budget ,which included a five year freeze in the value of the lifetime allowance at its current level of £1,073,100.

The government has previously offered people the chance to protect themselves against LTA cuts, including Fixed Protection 2016, which allows savers to lock in the old LTA of £1.25m on the strict condition that no further pension contributions are made.

This is alongside Individual Protection 2016, which allowed those who already had pensions valued at over £1m when the LTA was cut to lock in a personalised LTA set at whatever their pension was worth at the time.

So far, over 27,500 people have opted to take advantage of the Individual Protection 2016, while over 44,800 have opted to use the Fixed Protection 2016.

Commenting on the findings, LCP partner, Steve Webb, stated: “Limits on pension tax relief have been cut repeatedly in recent years and savers who planned on the basis of much higher limits can find themselves on course for large tax bills when they start to draw they pensions.

“Anyone whose pensions already exceed the Lifetime Allowance or who thinks that they might do in future should check to see if applying to HMRC for protection would be to their benefit.”

For instance, someone who had a sizeable pension pot as of April 2016 but below the £1m new LTA might benefit from the use of Fixed Protection 2016, as investment growth alone could be expected to take the value of the pot above £1m.

LCP also stressed, however, that given the complexity of the issue, it is generally a good idea to take financial advice when considering applying for protection against LTA charges.

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