The member's primary protection takes the form of a higher
lifetime allowance. They will always be allowed a lifetime
allowance which exceeds the
standard lifetime allowance by the same proportion
as their approvable benefits at 5 April 2006 exceeded £1.5
million.
This is achieved by giving the member a factor to apply to
the standard lifetime allowance at any time benefits are
crystallised. However, an individual who has primary protection
might still become liable to a
lifetime allowance charge. The following example
demonstrates this.
Example
Brian's approvable benefits at 5 April 2006 were valued at £3 million. The standard lifetime allowance at 6 April 2006 was £1.5 million.
Brian is given a factor of plus 1 because his benefits exceed the standard lifetime allowance by an amount equal to the standard lifetime allowance - that is, one times the standard lifetime allowance.
This means that whatever the amount of the standard lifetime allowance is when Brian takes his benefits, he will not pay a lifetime allowance charge unless and until those benefits exceed two times the standard lifetime allowance.
For example if he takes £2 million of benefits in July 2006, he pays no lifetime allowance charge, as his personal lifetime allowance at that time is £3 million. If he takes another £1.6 million of benefits in March 2011, there will be some liability to the lifetime allowance charge. In March 2011, Brian has primary protection of £3.6 million (standard lifetime allowance of £1.8 million plus a factor of 1 = £3.6 million). Brian used up £2 million in 2006-07. The value of the benefits previously taken must be indexed by the increase in the standard lifetime allowance between 2006-07 and 2010-11 to give the £2 million a current value.
This means that £2.4 million will be deducted from £3.6 million (£2 million x 1.8/1.5 million). Brian has an available amount of lifetime allowance at the benefit crystallisation event of £1.2 million. In taking benefits valued at £1.6 million, Brian will be liable to a lifetime allowance charge on the £400,000 that exceeded Brian’s available lifetime allowance.
| Glossary ( RPSM20000000) |
