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Auto-tax for unaware NEST joiners
Simon Bonnett Head of Financial Planning at Fiducia Wealth Management provides a brief insight into the implications of the introduction of NEST.
Over the next 6 years, companies will be obliged to auto-enrol all eligible employees into a qualifying pension arrangement.
This means that those who have carefully built up retirement funds and applied for Enhanced or Fixed Protection will be forced into a position of automatically joining a pension arrangement – with hefty financial consequences. By virtue of automatically receiving a pension contribution through auto-enrolment, Enhanced and Fixed Protection certificate holders invalidate the protection against tax penalties of up to 55% on amounts above the lifetime allowance.
For example, those who felt secure with Fixed Protection and a current fund of £1.8m will see their pension funds valued above £1.5m taxed by up to £165,000 if they do not opt-out immediately.
Anyone can opt-out of a pension scheme they have been auto-enrolled into by giving their employer notice within one month. But it is not possible to opt out in advance of being auto-enrolled. Generally every three years employers must automatically re-enrol most eligible employees who are not active members of a qualifying pension scheme.
Simon Bonnett, Head of Financial Planning at Fiducia raises the question: ‘We are glad that HMRC will be writing to 7,500 individuals who have enhanced protection to highlight this issue, but will an individual remember to act on a letter sent up to 6 years before they are auto-enrolled?’
The onus is therefore firmly on individuals with Enhanced or Fixed Protection to ensure they remember to opt-out.
For more information visit our website: http://www.fiduciawealth.co.uk or call 01206 321045