Pension protection - frequently asked questions

Individuals who had a benefits value on 5 April 2006 of over £1.5 million could use primary protection to reduce or eliminate the chance that a lifetime allowance charge will apply. The amount of tax-free cash they built up before 6 April 2006 could also have been protected. The tax-free cash is protected as a monetary amount if it exceeded £375,000 (25% of the lifetime allowance on 6 April 2006). The amount payable after 6 April 2006 is the amount of tax-free cash available on 5 April 2006 indexed in line with increases to the lifetime allowance. Since 6 April 2012, this increase factor is 1.2 (£1.8m/£1.5m), despite the current lifetime allowance being £1,073,100. 

Primary protection had to be applied for by 6 April 2009.

It was possible for somebody to register their own personal lifetime allowance. This is expressed as a primary protection factor which is used to calculate the individual's personal lifetime allowance when they take their pension benefits. Any amounts in excess of this will be subject to a lifetime allowance charge.

If pre 6-April 2006 (A-Day) tax-free cash was less than £375,000 (25% of the lifetime allowance on 6 April 2006) the amount payable will be the lower of:

• 25% of the benefits value when retirement benefits are taken, and
• 25% of £1.5 million (£375,000).

The tax-free cash is protected as a monetary amount if it exceeded 25% of the lifetime allowance on 6 April 2006. The amount payable will be the amount of tax-free cash available on 5 April 2006 indexed in line with increases to the lifetime allowance. Since 6 April 2012, this increase factor is 1.2 (£1.8m/£1.5m), despite the lifetime allowance being £1,073,100.

Yes, but if the benefits value when retirement benefits are taken exceeds the personal lifetime allowance at that point, a lifetime allowance charge will apply.

If benefits are transferred to another registered pension scheme and primary protection had been granted the protection remains.

If an individual had pension rights before 6 April 2006 (A-Day), they could have applied for enhanced protection. There was no minimum benefits value, but enhanced protection would only have made sense if the individual thought their pension benefits might exceed the lifetime allowance. It gives full protection from the lifetime allowance charge when they come to take their benefits.

Those who had an entitlement to more than 25% of the lifetime allowance /benefits value as tax-free cash on 5 April 2006 will get the same percentage of their benefits value when the benefits are taken. Somebody applying for enhanced protection could also have applied for primary protection if their benefits value exceeded £1.5 million on 5 April 2006. Anyone who selected enhanced protection had to stop being an active member of all registered pension schemes (excluding any on-going contracted-out payments to a scheme that existed before 6 April 2006) prior to 6 April 2006. If an individual loses or gives up enhanced protection, they have 90 days to notify HMRC or there will be a financial penalty imposed.

HMRC Pensions Tax Manual - PTM092420: Notification to HMRC of loss of enhanced protection

The following table sets out the circumstances in which individual are treated as accruing further benefits:

Money purchase

HMRC Pensions Tax Manual - PTM09430: Relevant benefit accrual in other money purchase arrangements

Defined benefits and cash balance benefits

HMRC Pensions Tax Manual - PTM09430: Relevant benefit accrual in defined benefits and cash balance arrangements

Unlike money purchase schemes where benefit accrual is based on contributions paid, under defined benefits it's based on the increase in benefits payable. For cash balance accrual is checked when benefits are paid out or on transfer. Contributions to these types of scheme will not automatically trigger the loss of enhanced protection.

Although individuals can only build up limited benefits under a defined benefit scheme or a cash balance arrangement on or after 6 April 2006 the eventual benefit paid will not be linked to earnings on 5 April 2006. Provided earnings don't increase by too much the individual will continue to benefit from salary growth (for as long as they remain in the employer's service) while protecting all of their benefits from the lifetime allowance charge.

HMRC Pensions Tax Manual - PTM09430: The post commencement earnings limit for capped members

If less than 25% of the benefits value was available as tax-free cash on 5 April 2006, the maximum tax-free cash available will be the lesser of:

• 25% of the benefits value when retirement benefits are taken, and
• 25% of £1.5 million (£375,000).

If the individual is entitled to more than 25% of the standard lifetime allowance/benefits value when they take their retirement benefits, this will be protected as a percentage of the benefits value on 5 April 2006 . The tax-free cash when the benefits are taken will be based on the same percentage of the benefits value as it was on 5 April 2006.

So long as it is a permitted transfer, protection will remain if benefits are transferred to another registered pension scheme.

HMRC Pensions Tax Manual - PTM092420: Permitted transfers

Individuals who didn't opt for transitional protection but who had the right to more than 25% of their benefits value on 5 April 2006 as tax-free cash will still be able to have the higher percentage paid when they take their retirement benefits. They didn't have to register this unless they were also applying for primary or enhanced protection. They can still get the higher tax-free cash amount based on the amount of tax-free cash on 5 April 2006 increased in line with the increases to the lifetime allowance, up to the date they take their retirement benefits. Since 6 April 2012, this increase factor is 1.2 (£1.8m/£1.5m), despite the current lifetime allowance being £1,073,100.

If benefits are transferred to another registered pension scheme and primary or enhanced protection has been granted the protection will remain, subject to conditions. However, the same will not apply to somebody with a tax-free cash entitlement of more than 25% if they had not applied for primary or enhanced protection. These people will lose their entitlement to the higher amount of tax-free cash under the new plan, unless their transfer can be classed as a 'block transfer' or in certain circumstances where a scheme winds up.

Fixed protection 2012
An individual who registered for fixed protection 2012 will keep a lifetime allowance of £1.8 million after 6 April 2012 (when the lifetime allowance reduced to £1.5 million).

Fixed protection 2014
An individual who registered for fixed protection 2014 will keep a lifetime allowance of £1.5 million after 6 April 2014 (when the lifetime allowance reduced to £1.25 million).

Fixed protection 2016
An individual who registers for fixed protection 2016 will keep a lifetime allowance of £1.25 million after 6 April 2016 (when the lifetime allowance reduced to £1 million).

Fixed protection 2012
Anyone who did not have either primary protection or enhanced protection could have applied for fixed protection 2012. They did not need to have built up pension savings of more than £1.5 million to apply but anyone who opted for fixed protection must have stopped being an active member of all registered pension schemes prior to 6 April 2012.

Fixed protection 2014
Anyone who did not have either primary protection, enhanced protection or fixed protection 2012 could have applied for fixed protection 2014. They did not need to have built up pension savings of more than £1.25 million to apply but anyone who opted for fixed protection must have stopped being an active member of all registered pension schemes prior to 6 April 2014.

Fixed protection 2016
Anyone who does not have either primary protection, enhanced protection, fixed protection 2012 or fixed protection 2014 can apply for fixed protection 2016. They do not need to have built up pension savings of more than £1 million to apply but anyone who opts for fixed protection must have stopped being an active member of all registered pension schemes prior to 6 April 2016.

Fixed protection 2012
No, anybody opting for fixed protection 2012 had to apply before 6 April 2012.

Fixed protection 2014
No, anybody opting for fixed protection 2014 had to apply before 6 April 2014.

Fixed protection 2016
Unlike fixed protections 2012 and 2014 there is no application deadline for fixed protection 2016. 

Anyone applying for fixed protection 2016 had to stop being an active member of all registered pension schemes before to 6 April 2016.

Anyone who wishes to apply for lifetime allowance protection has to do so online. 

The individual will need an HMRC Online Services Account, if they do not already have one they will have to create an account. Details of their lifetime allowance protections will be held on their online account.

HMRC services: sign in or register.  

Individuals will not receive paper certificates with their lifetime allowance protection details. 

Yes, to keep fixed protection an individual:

• can't start a new arrangement other than to accept a transfer of existing pension rights
• can't have benefit accrual
• will be subject to restrictions on where and how they can transfer benefits

If the individual breaks one of these conditions fixed protection is lost. The individual must tell HMRC if fixed protection is lost.

More information on benefit accrual and the relevant percentage can be found in:

• PTM093510 - Fixed protection: benefit accrual: What is “benefit accrual”? 
• PTM093600 - Fixed protection: the 'relevant percentage'

To keep fixed protection, pension rights from a money purchase arrangement can only be transferred to another money purchase arrangement which is a registered pension scheme.

Pension rights from a cash balance arrangement or defined benefits arrangement can be transferred to:

• a money purchase arrangement under a registered pension scheme
• another cash balance arrangement if the transfer is made because:
  • the pension scheme making the transfer is winding up or
  • the employer has sold all or part of their business and the benefits are being transferred to the new employer's scheme.
  • it is made as part of a retirement benefit activities compliance exercise.

HMRC Pensions Tax Manual - PTM093400: Transfers that allow the individual to keep Fixed Protection or Fixed Protection 2014 and 2016

Individual protection 2014
Gives individuals who thought the value of their benefits would be over the lifetime allowance when they come to take their benefits, a personalised lifetime allowance based on the value of their pension savings on 5 April 2014 (up to a maximum of £1.5 million). It allowed individuals whose pension rights were valued at over £1.25 million on 5 April 2014 to protect those rights, subject to an overall maximum of £1.5 million. A crucial difference from fixed protection is that they will still be able to be an active member of a pension scheme. Individuals were able to apply for individual protection 2014 up to 5 April 2017.

It was possible to apply for individual protection 2014 if the individual already had fixed protection 2014.

Individual protection 2016
Will give individuals who think the value of their benefits will be over the lifetime allowance when they come to take their benefits, a personalised lifetime allowance based on the value of their pension savings on 5 April 2016 (up to a maximum of £1.25 million). It allows individuals whose pension rights were valued at over £1 million on 6 April 2016 (the lifetime allowance from 6 April 2016) to protect those rights, subject to an overall maximum of £1.25 million.

There is no time limit for applying for individual protection 2016.

As with individual protection 2014, a crucial difference from fixed protection 2016 is they can still be an active member of a pension scheme. It is possible to apply for individual protection 2016 if the member already has fixed protection.

Yes, it is possible to apply for individual protection 2016 if the individual already has fixed protection 2016.