Individual protection

What is individual protection?

Individual protection (IP) maintains the lifetime allowance at a certain level depending on what type the individual has. There are two different versions: 

IP gives individuals who think that 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.

IP 2014 allows someone whose pension rights are valued over £1.25 million (the lifetime allowance between 6 April 2014 and 5 April 2016) to protect those rights, subject to an overall maximum of £1.5 million.

IP 2016 allows someone whose pension rights are valued over £1 million (the lifetime allowance between 6 April 2016 and 5 April 2017) to protect those rights, subject to an overall maximum of £1.25 million.

For example, someone with pension rights worth £1.2 million at 5 April 2016 will be able to have £1.2 million as their personal lifetime allowance through IP 2016. Someone with pension rights worth £1.3 million will be able to have £1.25 million as their personal lifetime allowance, helping them to reduce their lifetime allowance charge.

This personalised lifetime allowance will not increase unless the lifetime allowance increases to a level greater than the individual's personalised lifetime allowance. In these circumstances the individual's personalised lifetime allowance would revert to the new standard lifetime allowance.

A crucial difference from fixed protection is that an individual can still be an active member of a pension scheme.

IP will be useful for an individual who intends to continue contributing to a pension scheme as it allows them to keep a lifetime allowance greater than the standard lifetime allowance that applies.

IP may also be beneficial to an individual whose employer normally contributes towards their pension scheme as it allows them to continue receiving the value of the employer's contribution, even though a tax charge will apply to the benefits it provides. This will be particularly useful where the individual isn't able to renegotiate their employment package, for example receive their employer contribution in a more tax efficient format.

It is possible to apply for IP if an individual already has fixed protection (FP). Individuals can apply for both FP protection and IP and where this is the case, FP will take precedence. If FP is lost, the individual will revert to IP.

Applying for individual 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. If the individual had applied previously using the interim paper process (before 31 July 2016) details of their lifetime allowance protections will already be held on their online account.

HMRC services: sign in or register.  

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

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 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.

Unlike FP2014 and IP14 there is no deadline for applying for FP16 and IP16.

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.