Primary and enhanced protection
It was possible to protect pension benefits built up before 6 April 2006 (A-Day) from a lifetime allowance charge by applying for primary and enhanced protection.
From 6 April 2024, primary and enhanced protection provides for a higher lump sum allowance and lump sum and death benefit allowance.
What is primary protection
Before 6 April 2024, primary protection gave individuals, who had a benefits value on 5 April 2006 which exceeded the lifetime allowance of £1.5 million, their own personal lifetime allowance. This was expressed as a primary protection factor, which was used to calculate the individual's personal lifetime allowance when benefits were taken.
Due to the reduction in the lifetime allowance, from 6 April 2012, the lifetime allowance used to calculate the level of personal lifetime allowance remained at £1.8 million.
Example
Benefits value on 5 April 2006 = £2.25 million
Primary protection factor is therefore = £2.25 million - £1.5 million = £0.75 million/£1.5 million = 0.5
Benefits value in May 2023 = £2.65 million
Lifetime allowance in tax year 2023/24 = £1,073,100
Primary protection maintained the lifetime allowance at £1.8 million
Personal lifetime allowance when benefits are taken = £1.8 million + (£1.8 million x 0.5) = £2.7 million
Since 6 April 2024, when the lifetime allowance was abolished, primary 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 |
| Primary protection |
If pre-6 April 2006 tax-free cash was less than £375,000 (25% of the lifetime allowance on 6 April 2006) the amount available is the lesser of:
The tax-free cash is protected as a monetary amount if it exceeded £375,000 on 5 April 2006. Since 6 April 2012 the amount payable is the tax-free cash available on 5 April 2006 increased by 20%. Their maximum tax-free cash entitlement will have been shown as a monetary amount on their primary protection certificate. |
£1,800,000 x the individual’s primary protection factor. |
Can you lose primary protection?
No. Primary protection cannot be revoked, allowing for contributions or benefit accrual after 6 April 2006. But an individual cannot apply for fixed or individual protection if they hold primary protection.
Can you still apply for primary protection?
No. Primary protection applications had to be made by 5 April 2009.
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.
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.
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 |
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. This certificate also shows the percentage of the value of total benefits coming into payment that can be paid as a pension commencement lump sum.
The amount of tax-free cash is capped as a monetary amount based their fund value under the arrangement on 5 April 2023. You should note that the percentage can be less than 25%.
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.
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 contribution/benefit accrual has been removed and will not trigger the loss of enhanced protection.
Can you still apply for enhanced protection?
No. Enhanced protection applications had to be made by 5 April 2009.
Further information
- HMRC Pensions Tax Manual - PTM176220 - Lump sum allowance and lump sum death benefit allowance: Primary protection: Lump sum protection in excess of £375,000
- 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
- HMRC - Losing your lifetime allowance protection
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.