Towry, a wealth adviser which runs its own in-house Sipp service, has warned that the impending further reduction in the pension lifetime allowance - due next April - will mean that many individuals with a well-funded pension pot will need to consider their options.

The current limit of £1.5 million will reduce to £1.25 million on 6 April 2014. While many consumers see these as large sums, Towry points out the new maximum would only equate to a pension of £62,500 a year from a final salary scheme and potentially less than that if an investor was buying an annuity from his own pension fund. With the tax charge on any excess over the limit running at up to 55%, there is a need to take action, says Towry.

The firm says that for those likely to have pensions valued in excess of the new limit, there is the possibility of maintaining the current lifetime allowance by applying for 'Fixed Protection 2014 (FP2014)'. All applications need to be with HMRC by 5 April 2014 at the latest.

Towry says, however, that applying for FP2014 may not be a simple decision as there is the added complexity that there will be another form of protection available in the next tax year known as 'Individual Protection (IP)'. This will allow anyone with pensions valued above the £1.25 million allowance on 6 April 2014 to apply for their own personal lifetime limit equal to their pension value on that date or £1.5 million if that is lower.
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More importantly, says Towry, for those who wish to maintain FP2014 having applied for it, they must cease to accrue further pension benefits once they start the new tax year. So all contributions to personal arrangements by pensionholders and their employers, if applicable, must stop, and if they are in a final salary scheme they will need to ensure that their future pension does not go up faster than inflation. For most this will mean it is necessary to withdraw from the scheme. IP does not require the ceasing of future accrual but will not always give the higher protection levels that would have been due under FP2014, says Towry.

The firm says that any decision will depend on personal circumstances and pension funding arrangements and recommends that decisions are not left to the last minute.

Towry employs 650 people in 18 offices across the United Kingdom, managing £4.8 billion of discretionary client assets (as at 30 December 2012).