RPSM03200020 - Member Pages: Protecting pension
rights from tax charges: What is protection?
What is meant by protection?
The tax rules for pensions changed on 6 April 2006. The new
rules on the taxation of pension benefits include
- Benefits should not be paid before you are
age 55 (age 50 before 6 April 2010)
- Where the total value of all your pensions
in payment is more than the
lifetime allowance (which in the tax year 2006/07
is £1.5 million) any pensions above that amount will be
subject to a tax charge. If the amount above the lifetime allowance
is used to give you a pension the tax rate will be 25%. The tax
rate is 55% if you take the excess over the lifetime allowance as a
- The amount of the tax free lump sum will
be limited to 25% of the value of the pension fund providing your
Before 6 April 2006 some people had the right to
- take pension benefits before age 55,
- pension rights worth more than £1.5
- a lump sum of more than 25% of the value
of the pension fund.
It is possible to protect these existing pension rights from
some of the tax charges in place from 6 April 2006.
This guidance tells you what kinds of protection are
available and what you may need to do.
What are my pension rights that may need to be protected?
Your pension rights for these purposes are the total of two
elements. These are
- any pensions and annuities already being
paid to you on 5 April 2006 that are benefits from tax approved
pension schemes, and
- the right to receive a benefit in the
future from tax approved pension schemes where those benefits have
not yet come into payment.
It is the cost of providing these rights, not your annual rate
of pension that is compared to the lifetime allowance.
Any lump sum benefits you had before 6 April 2006 and any
dependant’s pensions you get as a result of the death of your
spouse or other relative are not pension rights that need
What do I need to do?
Follow the steps below:
- Consider whether your pension rights accrued before 5 April
2006 are likely to need protection.
- If you think you need protection read about the different types
of benefit protection and what happens if you do not protect your
- Decide whether you wish to protect your pension/lump sum rights
and if you do
- Obtain a valuation of your pension/lump sum rights.
- Complete the Protection of Existing Rights form and return it
to HMRC by 5 April 2009 - see
You will need to contact your
scheme administrator to obtain the necessary
information. You may wish to contact a financial advisor to
establish what is best for you. However, it is your responsibility
to register for protection. Only you can do it.