Frequently Asked Questions (FAQ)
Protection
Can contributions be paid from 6 April 2006 (A-Day), where primary protection applies? | ||||||||||||||||
What happens if benefits are transferred and primary protection applies? | ||||||||||||||||
Can the benefits be transferred where enhanced protection applies? | ||||||||||||||||
Can the benefits be transferred where fixed protection applies? | ||||||||||||||||
Members who had a benefits value on 5 April 2006 (A-Day) of over £1.5 million could use primary protection to reduce or eliminate the chance that a lifetime allowance charge will apply. The amount of tax-free cash that they built up before A-Day is also protected. The tax-free cash is protected as a monetary amount if it exceeded £375,000 (25% of the lifetime allowance on A-Day). The amount payable after A-Day is the amount of tax-free cash available at 5 April 2006 indexed in line with increases to the lifetime allowance. From 6 April 2012, this increase factor is 1.2 (1.8/1.5), despite the lifetime allowance reducing to £1.5 million. | ||||||||||||||||
It was possible for somebody to register their own personal lifetime allowance. This is expressed as a primary protection factor which is used to calculate the member's personal lifetime allowance when they take their pension benefits. Any amounts in excess of this will be subject to a lifetime allowance charge. | ||||||||||||||||
If pre 6 April 2006 (A-Day) tax-free cash is less than £375,000 (25% of the lifetime allowance on 6 April 2006 then the amount payable will be the lesser of:
The tax-free cash will be protected as a monetary amount if it exceeded 25% of the lifetime allowance on A-Day. The amount payable will be the amount of tax-free cash available at 5 April 2006 indexed in line with increases to the lifetime allowance. From 6 April 2012, this increase factor is 1.2 (1.8/1.5), despite the lifetime allowance reducing to £1.5 million. | ||||||||||||||||
Can contributions be paid from 6 April 2006 (A-Day), where primary protection applies? | ||||||||||||||||
Yes, but if the benefits value when retirement benefits are taken exceeds the personal lifetime allowance at that point, a lifetime allowance charge will apply. | ||||||||||||||||
What happens if benefits are transferred and primary protection applies? | ||||||||||||||||
If benefits are transferred to another registered pension scheme and primary protection had been granted the protection remains. | ||||||||||||||||
If pre A-Day tax-free cash is less than 25% of the standard lifetime allowance on 5 April 2006 then the amount payable will be the lesser of:
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If a member had pension rights before 6 April 2006 (A-Day), they could have applied for enhanced protection. There was no minimum benefits value but enhanced protection would only have made sense if the member thought their pension benefits might exceed the lifetime allowance. It gives full protection from the lifetime allowance charge when they come to take their benefits. Those with an entitlement to more than 25% of the lifetime allowance /benefits value as tax-free cash on 5 April 2006 will get the same percentage of their benefits value when the benefits are taken. Somebody applying for enhanced protection could also apply for primary protection if their benefits value exceeded £1.5 million on 5 April 2006. Anyone who selected enhanced protection must stop being an active member of all registered pension schemes (excluding any on-going contracted-out payments to a scheme that existed before A-Day) prior to A-Day. Anyone who does without advising HMRC will 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
Unlike Money Purchase schemes where benefit accrual is based on contributions paid, Defined Benefit and Cash Balance accrual is checked when benefits are paid out or on transfer. Contributions to these types of scheme will not automatically trigger the loss of enhanced protection. Type of benefit Treated as accruing further benefits Defined benefits Cash balance benefits If the member's benefit increases by the greater of 5% and RPI between 6 April 2006 and the date benefits are taken.
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If less than 25% of the benefits value was available as tax-free cash at 5 April 2006 then the maximum tax-free cash available will be the lesser of:
If the member is entitled to more than 25% of the standard lifetime allowance/benefits value when they take their retirement benefits, this will be protected at A-Day as a percentage of the benefits value. The tax-free cash when the benefits are taken will be based on the same percentage of the benefits value as it was on 5 April 2006. | ||||||||||||||||
Can the benefits be transferred where enhanced protection applies? | ||||||||||||||||
If benefits are transferred to another registered pension scheme and protection has been granted the protection will remain. | ||||||||||||||||
Members who didn’t opt for transitional protection but who had the right to more than 25% of their benefits value at 5 April 2006 as tax-free cash will still be able to have the higher percentage paid when they take their retirement benefits. If somebody was entitled to more than 25% tax-free cash post A-Day they didn’t have to register this unless they were also applying for primary or enhanced protection. They can still get the higher tax-free cash amount based on the amount of tax-free cash at 5 April 2006 increased in line with the increases to the lifetime allowance, up to the date they take their retirement benefits. From 6 April 2012, this increase factor is 1.2 (1.8/1.5), despite the lifetime allowance reducing to £1.5 million. | ||||||||||||||||
If benefits are transferred to another registered pension scheme and protection has been granted the protection will remain. However, the same will not apply to somebody with a tax-free cash entitlement of more than 25% if they had not applied for primary or enhanced protection. These people will lose their entitlement to the higher amount of tax-free cash under the new plan, unless their transfer can be classed as a 'block transfer' or in certain circumstances where a scheme winds up. | ||||||||||||||||
A member who registers for fixed protection will keep a lifetime allowance of £1.8 million after 6 April 2012 (when the lifetime allowance reduced to £1.5 million). | ||||||||||||||||
Anyone who did not have either primary protection or enhanced protection could apply for fixed protection. They do not need to have already built up pension savings of more than £1.5 million to apply but anyone who opted for fixed protection must have stopped being an active member of all registered pension schemes prior to 6 April 2012. | ||||||||||||||||
No, anybody opting for fixed protection had to apply before 6 April 2012. | ||||||||||||||||
Yes, to keep fixed protection a member:
If the member breaks one of these conditions fixed protection is lost. The member must tell HMRC if fixed protection is lost. The following table sets out what ‘benefit accrual’ means.
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Can the benefits be transferred where fixed protection applies? | ||||||||||||||||
To keep fixed protection, pension rights from a money purchase arrangement can only be transferred to another money purchase arrangement which is a registered pension scheme.
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