RPSM03104100 - Technical Pages: Protecting pension rights from tax charges: Enhanced protection: Cessation: Consequences

Consequences of cessation

An individual who has registered for enhanced protection will lose it if they do not comply with the conditions for enhanced protection.

Once enhanced protection ceases, benefit crystallisation events for the individual are potentially liable to the lifetime allowance charge.

The tax treatment, for the purposes of the lifetime allowance charge, of earlier benefit crystallisation events whilst enhanced protection was valid will not be re-visited when enhanced protection ceases.

If the individual had lump sum rights of more than £375,000 that included uncrystallised lump sum rights on 5 April 2006 on cessation of enhanced protection the individual will lose their lump sum protection. Unless another form of lump sum protection applies (see below) pension commencement lump sums should be paid under the normal rules described at RPSM09104100.

If the individual claimed primary protection as well as enhanced protection they will revert to primary protection once enhanced protection ceases. If on 5 April 2006 the individual had lump sum rights of more than £375,000 that included uncrystallised lump sum rights protection of lump sums as described at RPSM03105135 will apply.

Where primary protection was not claimed the individual will revert to the standard lifetimeallowance once enhanced protection ceases.

If the individual

• had not claimed primary protection,
• had lump sum rights of more than £375,000 on 5 April 2006, and
• in any scheme on 5 April 2006 they had uncrystallised lump sum rights worth more than 25% of their total uncrystallised rights in that scheme,

the individual will revert to scheme specific lump sum protection as provided by paragraph 31 Schedule 36 (see RPSM03105510 to RPSM03105642 for more details).

At benefit crystallisation events after cessation of enhanced protection, the amount of the available lifetime allowance under section 219 Finance Act 2004 will be calculated in the usual way. (Benefit crystallisation events whilst enhanced protection was valid still use up the lifetime allowance.)

Where enhanced protection is lost, the individual also loses protection from the annualallowance charge. This will be from the start of the tax year in which enhanced protection is lost.