RPSM03100040 - Technical Pages: Protecting pre 6/4/06 pension rights from tax charges: Overview: Enhanced protection

Enhanced protection

This can be claimed by any individual with pension or lump sum rights in a tax privileged scheme or contract including those with pension rights of less than £1.5 million on 5 April 2006.

Enhanced protection fully protects the value of an individual’s pension rights on 5 April 2006. Such rights will not be subject to the lifetime allowance charge when they are brought into payment. Effectively, this means that if the value of the rights increases faster than the increase in the standard lifetime allowance, the individual will still be protected from the lifetime allowance charge. This is the main difference between primary and enhanced protection.

Fully protecting an individual's pension rights increases Exchequer costs. For this reason, there are constraints on what can be protected. These constraints apply after 5 April 2006. The details of this are described fully in RPSM03104070. Broadly, there must be no further accrual of defined benefits or cash balance rights above a specified level of indexation, and no contributions can be paid to increase pension rights in other money purchase arrangements. No benefits may be taken as a lifetime allowance excess lump sum while a claim to enhanced protection is in place.

Once an individual has made a valid notification of the intention to rely on enhanced protection, it will remain in force until they lose it because

• they fail to comply with the conditions for enhanced protection, or
• the individual notifies HMRC that they no longer wish to be covered by enhanced protection.

Enhanced protection is explained in more detail at RPSM03104000.