RPSM03102020 - Technical Pages: Protecting pension rights from tax charges: Primary protection: Protection from the lifetime allowance charge

Protection from the lifetime allowance charge

Protection of an individual’s pension rights will be achieved by giving the individual claiming it a higher personal lifetime allowance than the standard lifetime allowance.

This is achieved by applying an additional factor to the current standard lifetime allowance at the date that benefits are taken.

The additional factor is calculated using the formula in paragraph 7(3) of Schedule 36 Finance Act 2004 of (RR – SLA)/SLA

(Where RR = the value of the individual’s pension rights at 5 April 2006 and SLA = £1.5 million).

Example

Jacob has protected pension rights of £3 million.

Using the formula the additional factor is (£3 million - £1.5 million)/£1.5 million = 1.

In other words, 1 x standard lifetime allowance can be added to the standard lifetime allowance.

Thus, if at the time that benefits come into payment the standard lifetime allowance has increased to £2 million, Jacob will be protected from the lifetime allowance charge on rights valued up to £4 million. This is the standard lifetime allowance of £2 million at the date that benefits are taken plus a factor of 1 x standard lifetime allowance [£2 million] at that time.