THOUSANDS of savers will be worse off in retirement unless they prepare for the biggest shake-up in pensions for nearly a century.

There are just eight months left to get ready for the changes, which will cover every pension plan in the land and come into force on April 6 next year — named A-Day by the Inland Revenue.

The new regime has been broadly welcomed because many people will be able to contribute more to their pensions and buy a wider range of investments, including residential property. However, there will also be losers. Thousands of people get more tax-free cash under the current rules and they are running out of time to protect their entitlements.

Who should be taking action now — and what should they be doing?

Savers entitled to more than 25% tax-free cash

Most pensions pay a tax-free cash sum at retirement. From A-Day, the maximum tax-free amount will be 25% for all types of pensions.

Some savers in company pensions can claim more than this under the existing regime. Company plans typically pay a maximum of one-and-a-half times final salary. This is true whether you are in a money- purchase or final-salary scheme. So if you are earning £100,000 just before you retire, you may be entitled to £150,000. This could be more than 25% of the value of your pension fund.

You are most likely to be above the 25% ceiling if you have worked for the same company for several decades. To take the maximum one-and-a-half times final salary you would typically need to have been with the same firm for 40 years.

But don’t panic if you are over the 25% limit: your trustees will be able to protect your entitlement if they act quickly.

John Richardson at John Scott & Partners, an adviser, said: “Check with your trustees that your pre-A-Day entitlement is protected. But you still need to take care. If you decide to transfer out of the company scheme after A-Day, you may lose your protection.”

You might be tempted to transfer out of a company plan into a personal pension, for example, as the latter is likely to offer greater flexibility under the new rules, such as the opportunity to invest in residential property.

If you want to protect your entitlement to more than 25% tax-free cash but want more flexibility, you should consider moving into a type of pension called a “Section 32 contract” before A-Day. This is a special type of arrangement for transfers out of company pensions. It is your own individual plan, but you can ringfence the benefits you would have received from your employer’s scheme.

A handful of people with personal pensions may also be entitled to more than 25% tax-free cash under the existing regime but, unlike those in company pensions, there is nothing they can do to protect themselves. They may benefit from retiring before A-Day.

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