RPSM03104110 - Technical Pages: Protecting pension rights from tax charges: Enhanced protection: Cessation: Example

Consequences of cessation: example

Jill claimed pension rights valued at £4.5 million under enhanced protection. She also registered £4.5 million for primary protection giving an enhancement factor of +2 x the standard lifetime allowance.

In 2023 Jill’s pension rights had grown to £6 million. Jill decided to take benefits of £3 million leaving £3 million uncrystallised pension rights. The standard lifetime allowance in 2023 was £2.4 million. The £3 million benefit was protected from the operation of the lifetime allowance charge because of enhanced protection.

Jill notified HMRC in 2025 that she had made contributions to her money purchase arrangement held in a registered pension scheme. Due to the contributions Jill lost her enhanced protection and fell back onto her primary protection. At that time, her uncrystallised pension rights were worth £3.6 million.

In 2032 Jill took the remainder of her benefits, now worth £5 million. The standard lifetime allowance in 2032 was £3 million. Jill had protection from the lifetime allowance charge of £3 million plus 2 x £3 million, giving a personal lifetime allowance of £9 million under primary protection.

The amount of her available lifetime allowance is £9 million less the value of the benefit crystallisation event in 2023.

The value of that benefit crystallisation event is its original value, increased by the proportionate change in the levels of the standard lifetime allowance between 2023 and 2032. So the value of the earlier benefit crystallisation event is

£3 million x (£ 3 million/£2.4 million) = £3.75 million.

So in 2032 Jill’s remaining available personal lifetime allowance is £5.25 million (£9 million - £ 3.75 million). As Jill’s remaining benefits are valued at only £5 million she has no liability to the lifetime allowance charge.

For the purpose of this example, it is assumed that the lifetime allowance after 2011 increases by the rate of inflation which has been assumed to be 2.5%. The actual figures for the lifetime allowance after 2011 will be determined by Ministers following a review of the level of the lifetime allowance before April 2011.