Alan Chan, director and chartered financial planner at London-based IFS Wealth & Pensions, said he is aware of this rule, which is "particularly beneficial to those with a very large pension pot that’s close to or exceeding the lifetime allowance".
He said: "This means that they would save 25 per cent in lifetime tax charge if excess funds are taken as an income (including moving into drawdown), or 55 per cent if taken as a lump sum.
"Let us also be clear that tax avoidance is legal while tax evasion is illegal, although in the recent years the government has muddied the waters.
"This would be something we would consider for a high net worth client in that position as it would maximise the tax allowances available.
"It does not mean they pay no tax at all, as income tax is still payable on the funds they withdraw from their pensions (usually 20 per cent and even 40 per cent income tax) but they have just avoided additional tax from a lifetime allowance perspective."
maria.espadinha@ft.com
