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Pension protection - frequently asked questions
Although the lifetime allowance no longer applies from 6 April 2024, the various forms of protection often also protect the amount of tax-free cash that can be paid to an individual. This protected tax-free cash can remain after April 2024.
As with many aspects of the new rules, a lot of the pre-April 2024 regime is still in place. This is the case for the calculation of the amount that can be paid tax-free which still includes the “applicable amount”. This is the cap on the tax-free lump sum which is based on the capital value of the income benefits being paid. This is effectively the same calculation as pre-April 2024, but it has been tweaked to take into account the removal of the lifetime allowance.
Your questions answered.
Primary protection
Primary protection
What is primary protection?
| Type of protection | Lump sum allowance | Lump sum and death benefit allowance |
|
Primary protection Application had to be made by 5 April 2009 |
If pre-6 April 2006 tax-free cash was less than £375,000 (25% of the lifetime allowance on 6 April 2006) the amount available is the lesser of:
The tax-free cash is protected as a monetary amount if it exceeded 25% of the lifetime allowance on 5 April 2006. Since 6 April 2012 the amount payable is the tax-free cash available on 5 April 2006 increased by 20%. Their maximum tax-free cash entitlement will have been shown as a monetary amount on their primary protection certificate. |
£1,800,000 x the individual’s primary protection factor. |
Can contributions be paid from 6 April 2006 (A-Day), where primary protection applies?
Yes. Primary protection cannot be revoked allowing for contributions or benefit accrual after A-Day.
What happens if benefits are transferred and primary protection applies?
If benefits are transferred to another registered pension scheme and primary protection had been granted the protection remains.
Enhanced protection
Enhanced protection
What is enhanced protection?
| Type of protection | Lump sum allowance | Lump sum and death benefit allowance |
|
Enhanced protection Application had to be made by 5 April 2009 |
An individual with an entitlement to tax-free cash of more than £375,000 and more than 25% of the fund on 6 April 2006 could retain their tax-free cash entitlement. Their maximum tax-free cash entitlement will have been shown as a percentage on their enhanced protection certificate. Since 6 April 2023 their tax-free cash is still based on this percentage. However, the percentage is applied to their total benefits value on 5 April 2023. An individual with an entitlement to tax-free cash of more than 25% of their benefits value on 6 April 2006 but less than £375,000 couldn't protect the tax-free cash amount using enhanced protection. However, scheme specific tax-free cash protection may apply. |
The value of uncrystallised funds on 5 April 2024. |
In what circumstances will somebody with enhanced protection be treated as accruing further benefits?
Anyone who selected enhanced protection had to stop paying into any money purchase scheme (excluding any on-going contracted-out payments to an existing scheme) prior to 6 April 2006. Members of defined benefit schemes or cash balance arrangement could only build up limited benefits in a registered pension scheme on or after 6 April 2006. Anyone who broke these conditions, prior to 6 April 2023, without advising HMRC, could have faced a financial penalty.
Since 6 April 2023 the restriction on paying contribution/benefit accrual has been removed and will not trigger the loss of enhanced protection.
Can the benefits be transferred where enhanced protection applies?
Yes, since 6 April 2023 as long as it is to another registered pension scheme there have been no restrictions on where the money can be transferred to.
Scheme specific tax-free cash protection
Scheme specific tax-free cash protection
If somebody had an entitlement to more than 25% tax-free cash on 6 April 2006 (A-Day) and didn't apply for primary and/or enhanced protection, how much of a tax-free cash sum can they take when retirement benefits are taken?
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 by a factor of 1.2 (£1.8m/£1.5m).
25% of any increase in the value of the plan since 6 April 2006 can also be taken.
What happens when somebody transfers their plan and they were entitled to more than 25% tax-free cash pre 6 April 2006 (A-Day)?
If benefits are transferred to another registered pension scheme and primary or enhanced protection has been granted the protection will remain. 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
Fixed protection
What is fixed protection?
| Type of protection | Lump sum allowance | Lump sum and death benefit allowance |
|
Fixed protection 2012 Application had to be made by 5 April 2012 |
£450,000 | £1,800,000 |
|
Fixed protection 2014 Application had to be made by 5 April 2009 |
£375,000 | £1,500,000 |
|
Fixed protection 2016 Application must be made by 5 April 2025 |
£312,500 | £1,250,000 |
Can an individual apply for fixed protection at any time?
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 applied for fixed protection before 15 March 2023 had to stop being an active member of all registered pension schemes between 6 April 2016 and 5 April 2023. Somebody applying for fixed protection 2016 after 15 March 2023 must do so by 5 April 2025 and cannot be an active member of any registered pension scheme.
To apply this must be done 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 protections will be held on their online account.
HMRC services: sign in or register.
Individuals will not receive paper certificates with their protection details.
Can an individual lose fixed protection?
Yes, before 6 April 2023 to keep fixed protection applied for before 15 March 2023 an individual:
- couldn't start a new arrangement other than to accept a transfer of existing pension rights
- couldn't have benefit accrual
- was subject to restrictions on where and how they could transfer benefits
If the individual broke one of these conditions fixed protection was lost. The individual must tell HMRC if fixed protection is lost.
If somebody applies for fixed protection after 15 March 2023 fixed protection will be lost if an individual:
- starts a new arrangement other than to accept a transfer of existing pension rights
- has benefit accrual
- transfers benefits in certain circumstances
More information on benefit accrual and the relevant percentage can be found in:
Can the benefits be transferred where fixed protection (2012/2014/2016) applies?
Before 6 April 2023 to keep fixed protection applied for before 15 March 2023, pension rights from a money purchase arrangement could 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 could 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.
From 6 April 2023, for individuals who had fixed protection before 15 March 2023 they can transfer to any registered pension scheme without losing their protection. For individuals who apply for fixed protection after 15 March 2023 the restrictions still apply
Further reading
Individual protection
Individual protection
What is individual protection?
| Type of protection | Lump sum allowance | Lump sum and death benefit allowance |
|
Individual protection 2014 Application had to be made by 5 April 2017 |
25% of protected amount | The lower of £1.5 million or the value of benefits on 5 April 2014 |
|
Individual protection 2016 Application must be made by 5 April 2025 |
25% of protected amount | The lower of £1.25 million or the value of benefits on 5 April 2016 |
Is it possible to apply for individual protection 2016 if the individual already has fixed protection 2016?
Yes, it is possible to apply for individual protection 2016 if the individual already has fixed protection 2016.