FOR ADVISERS ONLY

Fixed protection

Fixed protection maintains the lifetime allowance at a certain level depending on which fixed protection the individual has. There are now three different versions.

Key facts

Fixed protection 2012 maintains the lifetime allowance of £1.8 million.
Fixed protection 2014 maintains the lifetime allowance of £1.5 million.
Fixed protection 2016 maintains the lifetime allowance of £1.25 million.
Unlike individual protection there is no minimum benefit value needed to apply for fixed protection.

What is fixed protection?

Fixed protection (FP) maintains the lifetime allowance at a certain level depending on what type the individual has. There are three different versions:

Type	Maintains the lifetime allowance at	Contributions must cease before	You had to apply by
Fixed protection 2012	£1.8 million	6 April 2012	5 April 2012
Fixed protection 2014	£1.5 million	6 April 2014	5 April 2014
Fixed protection 2016	£1.25 million	6 April 2016	No end date

Can anyone apply?

The only restrictions on who can apply for fixed protection 2016 relate to other lifetime allowance protections. You can’t have:

Primary protection.
Enhanced protection.
Any earlier version of fixed protection, for example you can't apply for fixed protect 2016 if you had either fixed protection 2012 or 2014.
Unlike individual protection there is no minimum benefit value needed to apply for fixed protection.

Can you lose fixed protection?

Fixed protection can be lost by:

starting a new arrangement other than to accept a transfer of existing pension rights
making further contributions (money purchase)
having further benefit accrual (defined benefit)
breaking the transfer restrictions (explained below)

Fixed protection can also be lost if the lifetime allowance subsequently increases to more than the protected amount. The individual's lifetime allowance will then be the higher lifetime allowance.
It is possible to have both fixed and individual protection.

The individual must tell HMRC if fixed protection is lost.

What is benefit accrual?

The following table sets out what benefit accrual means.

Type of plan	Benefit accrual
Money purchase (other than cash balance) benefits	This includes all personal contributions, employer contributions and contributions paid by other people on the individual’s behalf. The exceptions to the 'no contribution rule' are: Contributions may continue to a life assurance policy providing death benefits which do not attract tax relief. National Insurance rebates paid to the scheme will not cause the loss of fixed protection. Contributions paid by the individual or someone else (other than their employer) in respect of the individual after they have reached age 75.
Defined benefits and cash balance benefits	For defined benefits or cash balance arrangements benefit accrual will occur if in any tax year the value of the pension rights over the tax year have gone up by more than the 'relevant percentage', which is: An annual rate used to increase benefits and which was specified in the scheme's rules: - on 9 December 2010 for FP 2012, or - on 11 December 2012 for FP 2014, or - 9 December 2015 for FP 2016, or - the highest percentage so specified for an arrangement where there is more than one arrangement and they have different annual rates. Plus the relevant statutory increase percentage. For FP 2012 only, an annual rate specified by reference to the retail prices index (RPI) which is used to increase the member’s rights and was specified in the rules of a pension scheme (or a predecessor registered pension scheme) on 6 April 2012 and which does not exceed the RPI increase (or the highest percentage so specified for an arrangement where there is more than one arrangement and they have different annual rates) plus the relevant statutory increase percentage. (If no annual rate was specified) the higher of: - the relevant statutory percentage increase, and - the percentage by which the consumer prices index (CPI) for the month of September in the previous tax year is higher than it was for the same month in the year before (or nil if there had been no increase or a fall). An increase in the RPI means the percentage by which the RPI for a month specified in the rules of the pension scheme (or predecessor pension scheme) is higher than it was for the same month in the year before (or nil per cent if it is not higher). If no rate is specified, the percentage by which the consumer prices index (CPI) increased in the year ending in September of the previous tax year. If there is no increase or a fall in the CPI in this period, then the percentage rate is nil. For FP 2012 only, if both the first two bullet points apply and give different percentages, the relevant percentage is the higher percentage.

Type of plan

Benefit accrual

Money purchase (other than cash balance) benefits

This includes all personal contributions, employer contributions and contributions paid by other people on the individual’s behalf. The exceptions to the 'no contribution rule' are:

Contributions may continue to a life assurance policy providing death benefits which do not attract tax relief.
National Insurance rebates paid to the scheme will not cause the loss of fixed protection.
Contributions paid by the individual or someone else (other than their employer) in respect of the individual after they have reached age 75.

Defined benefits and cash balance benefits

For defined benefits or cash balance arrangements benefit accrual will occur if in any tax year the value of the pension rights over the tax year have gone up by more than the 'relevant percentage', which is:

An annual rate used to increase benefits and which was specified in the scheme's rules:
- on 9 December 2010 for FP 2012, or
- on 11 December 2012 for FP 2014, or
- 9 December 2015 for FP 2016, or
- the highest percentage so specified for an arrangement where there is more than one arrangement and they have different annual rates.
Plus the relevant statutory increase percentage.
For FP 2012 only, an annual rate specified by reference to the retail prices index (RPI) which is used to increase the member’s rights and was specified in the rules of a pension scheme (or a predecessor registered pension scheme) on 6 April 2012 and which does not exceed the RPI increase (or the highest percentage so specified for an arrangement where there is more than one arrangement and they have different annual rates) plus the relevant statutory increase percentage.
(If no annual rate was specified) the higher of:
- the relevant statutory percentage increase, and
- the percentage by which the consumer prices index (CPI) for the month of September in the previous tax year is higher than it was for the same month in the year before (or nil if there had been no increase or a fall).
An increase in the RPI means the percentage by which the RPI for a month specified in the rules of the pension scheme (or predecessor pension scheme) is higher than it was for the same month in the year before (or nil per cent if it is not higher).
If no rate is specified, the percentage by which the consumer prices index (CPI) increased in the year ending in September of the previous tax year. If there is no increase or a fall in the CPI in this period, then the percentage rate is nil.
For FP 2012 only, if both the first two bullet points apply and give different percentages, the relevant percentage is the higher percentage.

HMRC Pensions Tax Manual - PTM093510: Fixed protection: benefit accrual: What is “benefit accrual”?

HMRC Pensions Tax Manual - PTM093600: Fixed protection: the 'relevant percentage'

Can you lose fixed protection on transfer?

The following table sets out the conditions for transfers that preserve fixed protection.

Type of plan	Transfer conditions
Money purchase (other than cash balance) benefits	Can only be transferred to another money purchase arrangement under a registered pension scheme.
Defined benefits and cash balance benefits	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.

Type of plan

Transfer conditions

Money purchase (other than cash balance) benefits

Can only be transferred to another money purchase arrangement under a registered pension scheme.

Defined benefits and cash balance benefits

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

Fixed protection and automatic enrolment

An individual will normally be automatically enrolled into a new scheme under the Pensions Act 2008 provisions by their employer and unless they opt out within one month they will lose their fixed protection. The Government were aware of this issue and from 1 April 2015 an employer can use their discretion to not enrol or re-enrol a jobholder if they have certain tax protection on their benefits, for example enhanced protection, fixed protection 2012, 2014 or 2016.

If an employer automatically enrols an individual into their pension scheme, and this is not under the Pensions Act 2008 provisions, then they will lose their fixed protection. But they will not lose their protection if the scheme has a legally binding rule that treats an individual who opts out of scheme membership as never having been a member of the scheme, or if the individual has cancelled the pension contract under the FCA cancellation rules with the result that the contract is treated as void from the start.

Care should be taken at the re-enrolment date and if the individual changes employer as they will be automatically enrolled into their scheme.

HMRC Pensions Tax Manual - PTM093400: Protection from the lifetime allowance charge: fixed protection: losing fixed protection

HMRC Pensions Tax Manual - PTM092420: Setting up a new arrangement

Other types of protection from the lifetime allowance charge

Before fixed protection was introduced it had been possible to protect pre 6 April 2006 benefits from the lifetime allowance charge using primary and enhanced protection. It is no longer possible to apply for primary and enhanced protection.

How primary and enhanced protection work is explained in our article primary and enhanced protection.

There is also individual protection, more details on this can be found in our individual protection article.

Applying for fixed protection

Any individual 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 no longer receive paper certificates with their lifetime allowance protection details.

There is no deadline for applying for FP16 and IP16.

Guidance to help individuals who wish to apply for lifetime allowance protection has been published by HMRC on GOV.UK. They have also produced a new guide for valuing pensions for IP2014 and IP2016.

Temporary reference numbers

Individuals that used the interim paper process (before 31 July 2016) but have not followed this up with an online application will continue to have their savings protected and there will be no tax consequences, provided they have not lost their protection.

However, if the individual has further benefits to crystallise they must apply online to get a permanent reference number. Scheme administrators can use HMRC’s ‘look up service’ to check the level of protection and only permanent reference numbers will be recognised. This means that until the individual has a permanent reference number the payment of benefits will be a delayed or the lifetime allowance charge will be applied.

Frequently asked questions

What happens to fixed protection 2016 if the standard lifetime allowance increases to more than the £1.25 million?

The fixed protection 2016 will stop and the standard lifetime allowance will apply. So the standard lifetime allowance will have to increase to more than £1.25 million for fixed protection 2016 to stop.

Will a deferred member of a defined benefits scheme lose fixed protection 2016 if the deferred pension increases?

Not unless it increases by more than an amount specified in the scheme rules. This would have to have been in the scheme rules on 9 December 2015. If no amount is specified protection won't be lost if the increase is no more than the percentage increase in CPI at September of the previous year.

HMRC Pensions Tax Manual - PTM093600: Protection from the lifetime allowance charge: fixed protection and fixed protection: The “relevant percentage”

Further information

Note

The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow. All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.

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