What is enhanced protection?
Enhanced protection gave individuals full protection from the lifetime allowance charge when they took their benefits.
An individual with an entitlement to tax-free cash of more than 25% of the lifetime allowance (£375,000) and more than 25% of the fund on 5 April 2006 could also protect their tax-free cash entitlement.
Since 6 April 2024, when the lifetime allowance was abolished, enhanced 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 allowance |
Lump sum and death benefit allowance |
Enhanced protection
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An individual with an entitlement to tax-free cash of more than £375,000 and more than 25% of the fund on 5 April 2006 could retain their tax-free cash entitlement. Their maximum tax-free cash entitlement would 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 5 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 |
Tax-free cash entitlement
If the individual has a protected the tax-free cash entitlement, this will be shown as a percentage on their certificate. You should note that the percentage can be less than 25%.
If they took their benefits before 6 April 2023 their tax-free cash was based on the same percentage of their benefits value at crystallisation as it was on 5 April 2006.
From 6 April 2023 their tax-free cash is based on the same percentage of their benefits value at crystallisation as it was on 5 April 2006, but this is applied to the value of their uncrystallised rights on 5 April 2023.
If any of the arrangements do not allow more than 25% tax-free cash to be paid, and their entitlement is over 25%, they cannot use the unused allowance under any other arrangement.
HMRC Pensions Tax Manual - PTM176320: Lump sum allowance and lump sum and death benefit allowance: Enhanced protection: Lump sum protection in excess of £375,000
Can you lose enhanced protection?
Before 6 April 2023, if there was any accrual of defined benefits or cash balance rights above a specified level of indexation, and if any contributions were paid to other money purchase arrangements after 6 April 2006, enhanced protection was lost.
Since 6 April 2023, the restriction on paying contributions/benefit accrual has been removed and will not trigger the loss of enhanced protection, where the certificate was issued before 15 March 2023.
Can you still apply for enhanced protection?
No. Enhanced protection applications had to be made by 5 April 2009.