Individuals who currently benefit from tax protection for their pensions savings are at risk of inadvertently losing that protection, as a result of the requirement on employers automatically to enrol employees in a workplace pension scheme.
Over the past few years, the government has reduced the ceiling on tax-efficient pensions savings that an individual can make (from £1.8 million to £1.25 million), as well as the annual amount that can be saved tax-efficiently. Individuals can take steps to protect their existing limits (so that these are not eroded), but it is vital to realise that such protection can be lost in certain circumstances.
The likelihood of the protections being lost is significantly increased by the requirement for employers automatically to enrol most employees into a pension scheme. The requirements for auto enrolment are being introduced in stages depending on payroll size but are applying to more and more employers. The risk is that if an individual with protected pension limits is inadvertently enrolled into a workplace scheme (or is even, in some cases, provided with death in service cover) they could lose their individual protection. It is important to be aware of this risk and identify any individuals who might be affected before auto enrolment takes place. Given the level of lifetime pensions savings involved, these individuals are likely to be at director level, including, possibly, non executive directors.