Lifetime Allowance Protections Available

GUIDE 3 OF 6

In the previous guide, we outlined the effects that exceeding the Lifetime Allowance (LTA) can have on pension funds and their taxation. In previous years, the government introduced forms of protection that allowed individuals to retain higher LTA values. Below we explore the main forms of protections alongside their uses.

Please note, we will not be covering two forms of historic protection (e.g. primary and enhanced). For detailed information on either of these topics please visit https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm090000 or speak with one of our wealth managers.

Fixed Protection

There are three different types of Fixed Protection. Each version maintains the LTA at a certain level, depending on the type of protection the individual was able to apply for. In all cases, there was no minimum pension value required in order to apply for Fixed Protection. Protection is lost if any contributions are made after the qualifying date, including via auto-enrolment into a workplace pension.

Fixed Protection 2012 (FP2012) provides LTA protection of £1.8 million. The application period for this allowance is now closed. Protection is lost if any contributions are made after 5th April 2012.

Fixed Protection 2014 (FP2014) provides LTA protection of £1.5 million. The application period for this allowance is now closed. Protection is lost if any contributions are made after 5th April 2014.

Fixed Protection 2016 (FP2016) provides LTA protection of £1.25 million. The application period for this allowance is still available for those who qualify, but individuals cannot apply if they already hold FP2012, FP2014 or earlier forms of protection such as Primary or Enhanced Protection. Protection is lost if any further contributions are made after 5th April 2016.

Individual Protection

There are two different types of Individual Protection that maintain the LTA at a certain level, depending on the type of protection the individual was eligible for.

Individual Protection 2014 (IP2014) provides LTA protection at the lower of £1.5 million or the value of total pension benefits as at 5th April 2014. The application period for this allowance is now closed. Protection will remain even if contributions are made after 5th April 2014.

Individual Protection 2016 (IP2016) provides LTA protection at the lower of £1.25 million or the value of total pension benefits as at 5th April 2016. The application period for this is still open. Protection will remain even if contributions are made after 5th April 2016, but individuals cannot apply if they hold IP2014.

Therefore, Individual Protection can be useful to those who wish to continue contributing to a pension scheme but also have the potential to retain a higher LTA than the standard level.

Fixed Protection & Individual Protection

Individuals who have applied for Fixed Protection can also apply for Individual Protection. The Fixed Protection will take priority but if it is lost (say by further contributions to a pension) then Individual Protection will take its place.

For a worked example of this, see the box to the left.

Drawing Benefits

It is very important that a pension scheme administrator is provided with a copy of the correct protection certificate(s) before any benefits drawdown request; they will not automatically be aware of any associated protections. Failure to provide this information can lead to incorrect and/or higher LTA charges.

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