What is lifetime allowance protection?
Since its introduction in 2006, the standard lifetime allowance has changed on a number of occasions. In order to safeguard people who legitimately accumulated significant amounts of pension savings before lifetime allowance reductions, HMRC has employed a number of ‘lifetime allowance protections’.
Although the 2023 spring budget removed the lifetime allowance limit, you may still be eligible for a higher tax-free lump sum if you hold a valid HMRC protection.
Primary Protection, Enhanced Protection and Fixed Protection 2012
When the lifetime allowance was first introduced, people who had already accumulated pensions over £1.5 million could apply for either Primary or Enhanced Protection. These schemes gave the pension scheme member a lifetime allowance greater than the standard rate or, in the case of Enhanced Protection, gave them no liability at all for a lifetime allowance charge. Fixed Protection 2012, set the individual’s lifetime allowance at £1.8 million. In all of these cases, the individual had to meet certain criteria – including very limited opportunity to accrue further pension benefits. These opportunities are now closed and you must have applied for them at the time in order to benefit.
Fixed Protection 2014 and Individual Protection 2014
If you qualified for Fixed Protection 2014 your lifetime allowance will be fixed at £1.5 million and you’ll have very limited opportunity to accrue further pension benefits. Individual Protection 2014 is a bit more flexible and allows future pension saving equal to the amount you’d already accumulated at 5 April 2014 to a maximum of £1.5 million. Again, if you haven’t received these protections already, you can’t apply now.
Fixed Protection 2016 and Individual Protection 2016
Fixed Protection 2016 sets the lifetime allowance at £1.25 million with very limited opportunity to accrue further pension benefits. Individual Protection 2016 allowed people who had already accumulated more than £1 million at 5 April 2016 to continue pension saving with a maximum lifetime allowance of £1.25 million.
Applying for Fixed Protection 2016 and Individual Protection 2016
If you need a protection certificate in respect of Fixed Protection 2016 or Individual Protection 2016, you should apply to HMRC using their online application process.
HMRC also provides some guidance on checking your existing protections on this page. This check, and applications for permanent protection notification numbers, are made by using your personal account on the Government Gateway portal. If your application is successful, you’ll need to print off details of your protection status and forward it to SPPA before benefits can be put into payment.
Due to the complexity of pension tax planning and HMRC’s protection rules, you may want to consider taking independent financial advice.