FOR ADVISERS ONLY
Fixed protection
- 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.
Will benefit accrual or the payment of a contribution lose fixed protection?
If an individual makes a pension contribution or has benefit accrual, they lose their fixed protection on the day that occurs. If the individual has more than one pension arrangement and they lose fixed protection that applies to all of the arrangements, not just the one where benefit accrual took place.
Different rules apply depending on the type of scheme. More information can be found in the following pages of HMRC's Pension Tax Manual.
- Fixed protection: benefit accrual: What is “benefit accrual”?
- Benefit accrual under a money purchase arrangement that is not a cash balance arrangement
- Benefit accrual under a cash balance arrangement
- Benefit accrual under a defined benefits arrangement
- Valuation assumptions for benefit accrual under a cash balance or defined benefits arrangement
- Benefit accrual under a hybrid arrangement
- Benefit accrual under an annuity contract
- Benefit accrual under an arrangement for an individual who is a relieved member of a relieved non-UK pension scheme
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:
|
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 - 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
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.
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.
Further information
- HMRC Pensions Tax Manual - PTM093000: Protection from the lifetime allowance charge: fixed protection, fixed protection 2014 and fixed protection 2016
- HMRC Pensions Tax Manual - PTM094000: Protection from the lifetime allowance charge: individual protections 2014 and 2016
- Individual protection
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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