RPSM11101020 - Technical Pages: Lifetime allowance: Level of lifetime allowance: Where the standard lifetime allowance does not apply

There are circumstances where a member’s lifetime allowance will be set at a higher rate than the standard lifetime allowance. This may be, for example, where the member holds a certain type of pension credit in a registered pension scheme, or because they are entitled to either ‘primary protection’ as they held pension rights on 5 April 2006 of more than £1.5 million (see RPSM03102000) or, from 6 April 2012, “fixed protection” (see RPSM11101500).

The lifetime allowance enhancement factors

The circumstances where a member’s lifetime allowance may be enhanced beyond the standard lifetime allowance are specified in the legislation. This enhancement comes from a number of defined factors that are called lifetime allowance enhancement factors.

These lifetime allowance enhancement factors determine how much extra should be added to the standard lifetime allowance in any tax year where a benefit crystallisation event (BCE) occurs relating to that individual. They are measured by reference to the standard lifetime allowance itself or to the figure of £1.8 million where this is greater than the standard lifetime allowance applying at the time of the BCE and the circumstances generating the lifetime allowance factor occurred before 6 April 2012. So the factor details what fraction of the standard lifetime allowance/£1.8 million the individual gets at a BCE in addition to the standard lifetime allowance (or where an individual has primary protection the amount of £1.8 million if this is greater than the standard lifetime allowance - see RPSM03102020 for more detail).

Whenever a BCE occurs the scheme administrator adds together any factors the member is entitled to and multiplies the standard lifetime allowance figure for that tax year (or, where the BCE occurs on or after 6 April 2012, the figure of £1.8 million if this amount is greater than the standard lifetime allowance applying at the date of the BCE) by this figure. This then produces the individual’s actual lifetime allowance figure at that point.

The circumstances where lifetime allowance enhancement factors arise are very specific. As such the vast majority of people will not be entitled to an enhanced lifetime allowance but be subject to simply the standard lifetime allowance.

The factors enhance a member’s lifetime allowance for all BCEs under all schemes

Where the individual becomes entitled to a lifetime allowance enhancement factor that factor enhances that individual’s lifetime allowance permanently and applies to all future BCEs under any arrangement held in all registered pension schemes. The enhancement is not simply restricted to the particular arrangement(s) where the circumstance generating the factor occurred, e.g. the arrangement holding the pension credit.

More than one factor may apply

An individual may be entitled to more than one lifetime allowance enhancement factor. How these factors interact is explained in RPSM11101030 to RPSM11101120.

Notifying an entitlement to a lifetime allowance enhancement factor

Where a member believes they are entitled to a lifetime allowance enhancement factor they tell HMRC about this entitlement. HMRC will provide the individual with a certificate confirming this entitlement. See RPSM11101080.