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Adviser  >  Technical Central  >  Information & guidance  >  Pre A-Day protection  >  Protecting pre A-Day benefits

Protecting pre A-Day benefits

The maximum pension benefits that can be taken at vesting changed with effect from 6 April 2006. The largest change was for members of occupational pension schemes and retirement annuity contracts, but personal and stakeholder pensions were affected too. Since A-Day all retirement benefits are subject to the same rules regardless of how the scheme was set up e.g. a member of a personal pension is treated in the same way as a member of a pre-87 executive pension plan. Benefits built up before A-Day and after A-Day are also treated in the same way. It is important for anybody who already has a pension to review their options or they may run the risk of not getting the benefits at vesting that they expected.

Since A-Day the amount of savings that can be built up in a tax-advantaged environment is based on a standard lifetime allowance (SLA).

The maximum amount of tax-free cash that can normally be paid from any type of registered pension scheme is 25% of the benefits value, subject to an overall maximum of 25% of the SLA in force when benefits are taken.

It is possible for members of pension schemes set up before A-Day to protect the benefits that they already had on 5 April 2006. There are 2 types of protection – primary protection and enhanced protection. Members only have until 5 April 2009 to apply for protection, details on how to apply can be found in our article - 5 April 2009 deadline for primary and enhanced protection.

Primary protection - Members who had benefit values at 5 April 2006 of over £1.5 million can use primary protection to reduce or eliminate the chance that a lifetime allowance charge will apply. The amount of tax-free cash that they had already built up before A-Day can also be protected.

Enhanced protection - This also protects the tax-free cash that was built up before A-Day and completely eliminates the risk of a lifetime allowance charge being due (as long as certain criteria are met).

Enhanced protection can't be sought for members with benefits over and above the pre A-Day HM Revenue and Customs (HMRC) maxima. If there was a surplus on 5 April 2006 this has to be dealt with before the member can apply for enhanced protection. Primary protection can be applied for even if the limits were exceeded, but it is not possible to protect more than the HMRC maximum limit. The HMRC limit becomes the protected amount if the benefits were more than the HMRC limit at 5 April 2006.

The different types of protection are explained in more detail below:

Primary Protection

This can be used by members who had a benefits value on 5 April 2006 which exceeded the SLA of £1.5 million. It will be possible for a member to register their own personal lifetime allowance (PLA). This will be expressed as a primary protection factor which will be used to calculate the member's PLA at vesting date. Any amounts in excess of this will be subject to a lifetime allowance charge. Members have until 5 April 2009 to apply for primary protection.

Pension Commencement Lump Sum (PCLS, the post A-Day term for tax-free cash) - If pre A-Day PCLS was less than £375,000 (25% of the SLA on 6 April 2006) then the amount payable will be the lesser of 25% of the benefit value and 25% of the SLA at vesting.

The PCLS will be protected as a monetary amount if it exceeded 25% of the SLA on 5 April 2006. The amount payable will be the amount of PCLS available at 5 April 2006 indexed in line with increases to the SLA.  

Example 1 - Primary protection - PCLS less than 25% of SLA at 5 April 2006 Benefits value at 5 April 2006 = £2.25 million Primary protection factor is therefore = £2.25 million -£1.5 million  = 0.5                                                                      £1.5 million Benefits value in May 2011 = £2.65 million SLA in tax year 2011/2012 = £1.8 million PLA at vesting = £1.8 million + (£1.8 million x 0.5) =  £2.7 million PCLS PCLS at 5 April 2006 = £210,000 Maximum PCLS at vesting will be the lower of: - 25% x £1.8 million = £450,000 and - 25% of £2.65 million = £662,500 The maximum PCLS is therefore £450,000. The member's benefits value exceeds the SLA in the year in which they are vesting benefits. But, as he opted for primary protection, a PLA applies. PLA greater than benefits value at vesting so no lifetime allowance charge due.

Example 2 - PCLS more than 25% of SLA at 5 April 2006 Benefits value at 5 April 2006 = £4.5 million Primary protection factor is therefore = £4.5 million - £1.5 million = 2                                                                     £1.5 million Benefits value in July 2011 = £5.3 million SLA in tax year 2011/2012 = £1.8 million PLA at vesting = £1.8 million + (£1.8 million x 2)  = £5.4 million PCLS PCLS at 5 April 2006 = £840,000 Maximum PCLS at vesting will be:  £840,000 x £1.8 million  = £1.008 million                  £1.5 million Again, no lifetime allowance charge is due as PLA exceeds benefits value at vesting.

Enhanced Protection

This applies to members who would like full protection from the lifetime allowance charge when they come to take their benefits. A member with an entitlement to more than 25% of benefits value as PCLS, but less than 25% of the standard lifetime allowance on 5 April 2006 can protect this amount so that their PCLS entitlement increases in line with the standard lifetime allowance up to the date that benefits are taken. A member with an entitlement to PCLS of more than 25% of the standard lifetime allowance can protect their benefits so that when they come to take their benefits their PCLS will be based on the same percentage of the benefits value as it was on 5 April 2006. There is no minimum benefits value to register for enhanced protection. A member applying for enhanced protection can also apply for primary protection if their benefits value exceeded £1.5 million on 5 April 2006. Anyone who selects enhanced protection must either have stopped paying in to a money purchase scheme (excluding any on-going contracted-out payments to an existing scheme) prior to A-Day or members of defined benefit schemes or cash balance arrangement can only build up limited benefits in a registered pension scheme on or after A-Day. Anyone who breaks these conditions, without advising HM Revenue and Customs, can face a fine of up to £3000.

The following table sets out the circumstances in which individuals will be treated as accruing further benefits:

Money Purchase and Cash Balance benefits

Defined Benefits

Although members can only build up limited benefits under a defined benefit scheme or a cash balance arrangement on or after 6 April 2006 the eventual benefit paid will not be linked to earnings on 5 April 2006. Provided that earnings don't increase by too much the member will continue to benefit from salary growth (for as long as they remain in the employer's service) while protecting all of their benefits from the lifetime allowance charge.

Pre 6 April 2006 tax regime	Maximum earnings increase
Pre 1987 member and 1987- 1989 member	The lower of the best salary in any one 12 month period in the last 3 years before benefits are taken (or leaving service if earlier) if this is lower than 7.5% of the SLA in force at that point, and earnings averaged over the 3 years before benefits are taken (or leaving service if earlier).
Post 1989 member	The lower of 7.5% of the SLA (in force when benefits are taken), or the best salary in any one 12 month period in the last 3 years before benefits are taken (or leaving service if earlier)

PCLS - If less than 25% of the benefits value was available as PCLS on 5 April 2006 then the maximum PCLS available will be the lesser of 25% of the benefit value and 25% of the SLA at vesting.

If the member was entitled to more than 25% of the benefits value but less than 25% of the SLA as PCLS at 5 April 2006 the amount of PCLS at vesting will be the amount of PCLS at 5 April 2006 increased in line with the SLA.

If the member was entitled to more than 25% of the SLA at 5 April 2006 this will be protected. When the member comes to retire the PCLS will be based on the same percentage of the benefits value as it was on A-Day.

A summary of the 2 different types of protection: 

Primary	Enhanced
The member's benefits value on 5 April 2006 had to exceed £1.5 million	The member can protect any amount with no possibility of a lifetime allowance charge
Can make future contributions	All contributions to money purchase schemes must cease before A-Day and there can only be limited accrual under defined benefit schemes from A-Day, the only exception being any contracted-out rebates to a scheme that existed at 5 April 2006.
Benefits value on 5 April 2006 is expressed as a factor which is used to calculate the member's PLA. The PLA increases between 6 April 2006 and vesting in line with the SLA.	Unlimited fund growth protected for money purchase schemes (but no further contributions). Limited accrual protected for defined benefit schemes.
May attract a lifetime allowance charge on excess above PLA	May revert to primary protection if enhanced protection lost (if registered for primary protection as well)

No protection

Members who don't opt for transitional protection but who had the right to more than 25% of their benefits value at 5 April 2006 as PCLS are able to have a protected amount of PCLS paid at vesting and depending on fund growth additional PCLS based on post A-Day benefits.  Details of how this works can be found in our article Pre A-Day protection of scheme specific tax-free cash.

Lifetime allowance charge

Our factsheet which details how the lifetime allowance charge is calculated can be found in our article - Lifetime allowance charge. 

Transfer of benefits to a registered pension scheme from A-Day

Advice issues

There are a number of clients who were likely to have been entitled to more than 25% PCLS from their pre A-Day pensions. The most obvious are executive pension plan and small self-administered scheme clients who have been specifically funding for PCLS (most likely pre-87 members). Although they will still be able to take existing benefits in this form, all future accrual will be restricted to 25% of the benefits value. The eventual PCLS payable may therefore be significantly lower than what they were expecting.

Other clients likely to have more than 25% PCLS under their existing plan are other members of occupational schemes, or those with s32 buy-out bonds, especially long servers, and some retirement annuity clients with guaranteed annuity rates attaching. Unlike people in occupational pension schemes or s32 buy-out bonds, people in retirement annuity contracts with an entitlement to more than 25% PCLS lost this entitlement on A-Day, there was no scope to protect this entitlement.


This information is based on our current understanding of the relevant Finance Acts and may be subject to alteration as a result of changes in legislation or practice.

Any research and analysis has been provided by us for our own purposes and the results of it are being made available only incidentally.

Published 25 October 2004

Updated 22 December 2008