RPSM03102030 - Technical Pages: Protecting pension rights from tax charges: Primary protection: Taking benefits at different times

Protection from the lifetime allowance charge - taking benefits at different times

Where an individual takes benefits at different times the balance of the personal lifetime allowance will be indexed at the same rate that the standard lifetime allowance has been indexed.

Example

Jacob had £3 million of pension rights protected under primary protection on 5 April 2006, giving an additional lifetime allowance factor of 1.

He took benefits worth £1.8 million in 2011 when the standard lifetime allowance was £1.8 million. At that time, Jacob’s primary protection was worth £3.6 million (standard lifetime allowance of £1.8 million plus additional lifetime allowance factor of £1.8 million). So Jacob used up 50% of his personal lifetime allowance.

In 2023 Jacob took the rest of his benefits that were worth £2 million. The standard lifetime allowance (SLA) in 2023 was £2.1 million. Jacob’s primary protection was then worth £4.2 million (SLA plus a factor of 1).

Jacob has already used up 50% of his protection so has £2.1 million available. In taking £2 million Jacob has no lifetime allowance charge to pay. This is because the amount taken is within the amount of protection still available to him.

In describing how the individual gets a lifetime allowance that is greater than the standard lifetime allowance, it has been assumed that the individual’s rights when valued were within “HMRC limits”. The valuation section of this guidance at RPSM03101510 explains how only rights valued on 5 April 2006 within “HMRC limits” can be taken into primary protection.