Individual protection
Before 6 April 2024, individual protection maintained the lifetime allowance at a certain level depending on which individual protection the individual has. It now provides for a higher lump sum allowance and lump sum and death benefit allowance.
Key facts
- Individual protection 2014 gives individuals a protected lump sum and death benefit allowance equal to the value of their pension savings on 5 April 2014, subject to an overall maximum of £1.5 million.
- Individual protection 2016 gives individuals a protected lump sum and death benefit allowance equal to the value of their pension savings on 5 April 2016, subject to an overall maximum of £1.25 million.
- Pension contributions can continue to be paid. The value of any pension savings above the lump sum allowance and lump sum and death benefit allowance will be liable to an income tax charge.
- The deadline for applying for individual and fixed protection 2016 is 5 April 2025
What is individual protection?
When originally introduced individual protection maintained the lifetime allowance at a certain level depending on what type the individual has.
Before 6 April 2024 individual protection gave 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.
Since 6 April 2024, when the lifetime allowance was abolished, fixed protection maintains a higher lump sum allowance and lump sum and death benefit allowance.
These allowances are fixed monetary amounts, which are used up when tax-free lump sums are paid in respect of the individual. It is important to note that the figures below are the maximum amounts that can be paid, and any tax-free lump sum benefits taken before 6 April 2024 will reduce the amounts available to be paid tax free.
| Type | Lump sum and death benefit allowance | Lump sum allowance |
|---|---|---|
| Individual protection 2014 |
The lower of:
|
The lower of:
|
| Individual protection 2016 |
The lower of:
|
The lower of:
|
Individual protection 2014 allowed someone whose pension rights were valued over £1.25 million (the lifetime allowance between 6 April 2014 and 5 April 2016), as at 5 April 2014, to protect those rights, subject to an overall maximum of £1.5 million.
Individual protection 2016 allows someone whose pension rights were valued over £1 million (the lifetime allowance between 6 April 2016 and 5 April 2018), as at 5 April 2016, to protect those rights, subject to an overall maximum of £1.25 million. You can still apply for individual protection 2016, the deadline to do so is 5 April 2025.
When the lifetime allowance was abolished on 6 April 2024, the individual’s protected lifetime allowance became their protected lump sum and death benefit allowance. Their protected lump sum allowance is 25% of the lump sum and death benefit allowance. Any tax-free lump sums the individual takes, before and after 6 April 2024 are deducted from these allowances.
For example, someone with pension rights worth £1.2 million on 5 April 2016 will be able to have £1.2 million as their lump sum and death benefit and £300,000 as their lump sum allowance through individual protection 2016. Someone with pension rights worth £1.3 million will be able to have £1.25 million as their lump sum and death benefit allowance and £312,500 as their lump sum allowance, helping them to reduce their income tax liability if they exceed the limits.
A crucial difference from fixed protection is an individual could still be an active member of a pension scheme before 5 April 2023.
It is possible to apply for individual protection if an individual already has fixed protection. Individuals can apply for both fixed protection and individual protection and where this is the case, fixed protection will take precedence. If fixed protection is lost, the individual will revert to individual protection.
How do you apply for individual protection?
Any individual who wishes to apply for protection including individual protection 2016, has to do so online. The deadline for applying for fixed protection 2016 and individual protection 2016 is 5 April 2025.
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.
Individuals will no longer receive paper certificates with their protection details.
Guidance to help individuals who wish to apply for protection has been published by HMRC on GOV.UK.
What if an individual has a temporary reference number?
Individuals that have 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.
Disclaimer
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.