There will be a new form of protection called 'fixed protection'. If you expect your pension savings to be more than £1.5 million when you come to take your benefits on or after 6 April 2012 you can use fixed protection to protect them from the lifetime allowance charge.
On this page:
If you do not have either primary protection or enhanced protection you can apply for this new form of protection. You do not need to already have built up pension rights of more than £1.5 million to apply.
However if you have fixed protection there are restrictions on what you will be able to do with your benefits, For example, you will normally need to stop building up benefits under every registered pension scheme that you belong to by 5 April 2012. Remember, your pension scheme or employer may need time to stop your active membership. Don't leave it to the last minute.
Find out more about the conditions for fixed protection
You can apply for fixed protection using the APSS227 form and completion notes. These are available on the HM Revenue & Customs (HMRC) website.
Find form APSS227 and completion notes
You can apply for fixed protection until 5 April 2012.
Applications received after 5 April 2012 will not be accepted so you will need to make sure that HMRC get your fully completed form by 5 April 2012.
You will need to consider your own particular circumstances before deciding whether to apply. You may wish to seek independent professional advice before making any decision. HMRC cannot give you advice you on this.
No, you will not be able to apply for fixed protection online. To get fixed protection you will need to complete the application form. You will be able to print off a copy of this form from the HMRC website.
To complete the application form for fixed protection you will need to give your:
You will also need to confirm that you do not have enhanced or primary protection and sign the declaration on the form.
You will not need to give any valuation of your current or expected pension funds as part of your application.
As long as you complete the prescribed form giving all the information that is requested and you sign the declaration then HMRC will accept your application.
Your completed and signed form must also be received by HMRC by 5 April 2012. Applications received after 5 April 2012 will not be accepted.
When HMRC has received and processed your form they will send you a certificate to state that you have fixed protection. You will need to keep this certificate safe so that you can give this information to your pension scheme(s) when you come to take your benefits if you want to rely on this protection.
Applications must be received by HMRC no later than 5 April 2012.
There will not be any provision for late applications. You must ensure your application is made on time.
If you have fixed protection your lifetime allowance will be fixed at £1.8 million rather than the standard lifetime allowance of £1.5 million.
Your fixed protection will stop if in the future the standard lifetime allowance rises to be more than £1.8 million. Your lifetime allowance will then be the higher standard lifetime allowance.
Yes. You will lose fixed protection if you break one of the conditions for fixed protection. You must tell HMRC if you lose fixed protection.
If you lose fixed protection then you will revert to the standard lifetime allowance when testing whether or not your benefits are within the lifetime allowance.
To keep fixed protection you:
If you break one of these conditions you will lose fixed protection. You must tell HMRC if you lose fixed protection.
The rules for when benefit accrual occurs vary depending on which type of pension arrangement you belong to. If you have benefit accrual under just one of your pension arrangements you will lose fixed protection.
For a money purchase arrangement benefit accrual happens if after 6 April 2012:
An exception to this 'no contribution rule' is that contributions may continue to a life assurance policy providing death benefits that started before 6 April 2006.
For defined benefits or cash balance arrangements benefit accrual will occur if at any time in a tax year from 2012-13 onwards, the value of your uncrystallised rights (i.e. you have not already taken benefits) has gone up by more than the 'relevant percentage'. An increase to a pension in payment (crystallised rights) will not cause benefit accrual to occur.
What type of pension arrangement do I have?
The relevant percentage is either:
Defined benefits schemes normally specify a percentage rate by which deferred benefits will increase each year until the time when the member takes their benefits. For an active member, benefits will normally increase in value by reference to years of service and pensionable salary rather than by a percentage rate. So the relevant percentage for an active member of a defined benefits scheme will be the increase in CPI.
Payment of National Insurance rebates to your pension scheme will not cause you to lose fixed protection.
An employer may automatically put a new employee into their pension scheme, although the employee then has a right to opt out of scheme membership. At the moment, this automatic enrolment is by the employer’s choice. From October 2012, the Pensions Act 2008 will make some employers subject to an automatic enrolment duty which requires them to automatically enrol their employees into a pension scheme.
If your employer is subject to the automatic enrolment duty and automatically enrols you into a new pension scheme under the provisions of Pensions Act 2008, then you will have one month from the enrolment date to opt out of the new scheme. If you opt out within that one month period then the law treats you as if you were never a member of the pension scheme. So long as you opt out of automatic enrolment under the Pensions Act 2008 within one month you will keep your fixed protection. If you do not opt out in time then you will lose your fixed protection. Your employer must automatically re-enrol opted out employees every three years, so you will need to opt out within one month each time this happens.
If you change employer and your new employer is also subject to the automatic enrolment duty under Pensions Act 2008, they too will be required to automatically enrol you into their pension scheme. So if you have fixed protection you will also need to 'opt out' of you new employer's pension scheme to avoid losing your fixed protection.
If an employer auto enrols you into their pension scheme and this is not under the Pensions Act 2008 provisions then you will lose your fixed protection unless there is a legally binding scheme rule that will treat you as not having been a member of the scheme. Since you will have started a new pension arrangement this triggers loss of fixed protection. This applies even if you have cancelled the pension contract under the FSA cancellation rules.
If you have applied for fixed protection and you think that auto enrolment into a new scheme may mean that you will lose your protection then you should speak to your employer or prospective employer at an early stage to avoid being enrolled at all and your employer will be able to tell you how you can do this.
Yes, it is your responsibility to tell HMRC that fixed protection no longer applies.
If you make contributions to a money purchase arrangement you will lose fixed protection.
You may be able to make further contributions to a defined benefits or cash balance arrangement. But the way that your benefits are calculated may mean that there is benefit accrual if your benefits increase by more than the relevant percentage. If that is the case you will lose the protection.
Yes - you can remain a member of an occupational scheme without losing your fixed protection. However, your fixed protection will be lost if there is benefit accrual.
No. You do not need to have built up pension rights of more than £1.5 million to apply for fixed protection. You will not need to give a valuation of your pension savings on the form when you apply for fixed protection.
Anyone who has pension savings in a registered pension scheme, and who does not have primary or enhanced protection, can apply for fixed protection. But you are only likely to need fixed protection if you think that your benefits from all registered pension schemes will be more than £1.5 million when you take your benefits.
Yes, if you do not have primary or enhanced protection.
Under the tax rules it is possible for death in service benefits to be provided for deferred members. However your scheme may choose not to provide death in service benefits if you stop being an active member. This will depend on the rules of your scheme.
For most occupational pension schemes the ‘death in service’ benefit promised is a defined benefit, for example a lump sum that is a multiple of your salary. If this is the case continuing to provide death in service cover should not cause loss of fixed protection.
More information on when providing death in service benefits will cause loss of fixed protection
No. For the purposes of benefit accrual, a National Insurance rebate is not a 'relevant contribution' so payment of this into your pension scheme will not cause you to lose protection.
You can only join a new pension scheme and keep fixed protection if all that the new scheme does is receive a transfer of pension rights from an old scheme. The transfer must be one that does not cause you to lose fixed protection. So, for example, you could transfer benefits from one personal pension scheme into a new personal pension scheme. As long as no contributions are paid to the new personal pension scheme you will be able to keep fixed protection.
You can only transfer pension rights from a money purchase arrangement to another money purchase arrangement. The money purchase arrangement receiving the transfer must be held under either a registered pension scheme or a recognised overseas pension scheme.
You can transfer from a cash balance arrangement or defined benefits arrangement to:
You will lose protection if:
The rules for when a contribution is paid depend on how the contribution is made. For example, if the contribution is made by cheque then it is paid when the cheque is received by the pension scheme administrator, as long as the cheque is honoured.
What are the normal rules for when a contribution is paid?
If you have told your bank or building society in good time that you want to stop the payment but they have failed to act on this then you will not lose fixed protection.
Here, the payment(s) made by the bank or building society were beyond your control and you never intended that the payment(s) should be contributions. HMRC will not consider such payments as contributions and so fixed protection will not be lost.
The payments should be returned to you although you will have to repay any tax relief you have received in relation to them (see RPSM12101070 for more detail).
No, provided the pension credit is transferred to your existing money purchase arrangement under your personal pension scheme. The tax rules provide that a pension credit in such cases is not a tax relievable contribution so its payment will not cause loss of the fixed protection.
However if the pension credit is received from a non-registered pension scheme it is tax relievable. Fixed protection will be lost if it is paid into a registered pension scheme.
Likewise, if the pension credit is transferred into a new arrangement for you, fixed protection will be lost. This is because setting up of the new arrangement will trigger loss of fixed protection.
If the pension credit is transferred into a new arrangement for you, fixed protection will be lost due to the setting up of the new arrangement.
If the pension credit is transferred into an existing defined benefits or cash balance arrangement then fixed protection will be lost if at the end of the tax year in which the pension credit is transferred into the arrangement benefit accrual occurs. It is very likely that there will be benefit accrual in such cases.
Find out more about benefit accrual
Full guidance on how fixed protection works can be found in the Registered Pension Schemes Manual (RPSM) from RPSM11101500.
Note one: You will need to carry out the test to see if you have had benefit accrual and you will need to do this at least once in every tax year that you have fixed protection. As the test is an ongoing test you may need to carry out the test at more frequent intervals, as the loss of fixed protection should be notified to HMRC within 90 days of benefit accrual. If you don’t do this you may have to pay penalties. You are responsible for doing the test because you have signed the declaration when you applied for fixed protection. However, you may need to ask your pension scheme administrator for information to help you carry out the test.
Note two: These examples do not take account of the impact of the reduced annual allowance. In some of the examples there may therefore also be a liability to an annual allowance charge. If you are liable for an annual allowance charge in the year that you exceed the lifetime allowance, you will not get a reduced lifetime allowance charge.
Sarah is a member of a defined benefit scheme. Sarah applies for fixed protection. She also tells her scheme that she wants to stop accruing pension benefits.
Under the rules of Sarah's pension scheme:
This rule has been in place since before 9 December 2010.
As the 'death in service' benefit is not part of Sarah's pension rights this will not cause her to lose fixed protection.
As Sarah's pension is only being increased in line with an annual rate specified in the scheme rules she will not lose fixed protection.
Roger is a member of a defined benefits scheme. His scheme gives him a pension of 1/60th of pensionable salary for each year of service. To get a lump sum Roger has to give up (commute) part of his pension. If Roger dies before he starts drawing his pension a lump sum of four times salary will be paid.
Roger applies for fixed protection but continues to build up benefits under his scheme after 5 April 2012. From 2012-13 onwards Roger needs to check on a regular basis in each tax year to see if he has lost fixed protection. He does this by testing whether or not the value of his pension rights have gone up by more than the 'relevant percentage' for the tax year. The relevant percentage is either:
The rules of Roger's pension scheme do not set a percentage by which member's benefits are increased each year. So Roger needs to check that his pension rights have not gone up by more than the annual CPI increase.
On 5 April 2012 Roger has 35 years of service and a pensionable salary
of £132,000. He has built up a pension of
35/60 × £132,000 = £77,000 pa.
The value of Roger's pension rights on 5 April 2012 is therefore
£
77,000 × 20 = £1,540,000.
On 5 April 2013 Roger's pensionable salary has gone up by only £500
to £132,500. Roger has now built up an annual pension of
36/60 × £132,500 = £79,500 pa.
This means the value of his pension rights is now
£
79,500 × 20 = £1,590,000.
The annual increase in CPI to September 2011 is 3 per cent. This means that as long as the value of Roger's pension rights in the tax year has not increased by more than 3 per cent he will keep fixed protection.
The value of Roger's pension rights as at 5 April 2012 increased by
CPI is
£
1,540,000 × 103/100 = £1,586,200.
This is less than the value of Roger's pension rights at the end of 2012-13. Roger has lost fixed protection from the date on which the value of his benefits exceeded £1,586,200.
Angela is a member of a defined benefits scheme. Angela's pension builds up at a rate of 1/80th of pensionable salary for each year of service. Her scheme also gives Angela a separate lump sum of three times her pension. If Angela dies before she starts drawing her pension a lump sum of four times her salary will be paid.
Angela applies for fixed protection and continues to build up benefits after 5 April 2012.
From 2012-13 onwards Angela will need to check on a regular basis in each tax year to see if she has lost fixed protection. She does this by testing whether or not the value of her pension rights have gone up by more than the 'relevant percentage' for the tax year. The relevant percentage is either:
The rules of Angela's pension scheme do not set a percentage by which member's benefits are increased each year. So Angela needs to check that her pension rights have not gone up by more than the annual CPI increase.
On 5 April 2012 Angela has 35 years of service and a pensionable salary of £132,000. She has built up a pension of
35/80 × £132,000 = £57,750 pa, and a lump sum of
3 × £57,750 = £173,250.
The value of Angela's pension rights on 5 April 2012 is therefore
(£57,750 × 20) + £173,250= £1,328,250.
The annual increase in CPI to September 2011 is 3 per cent. This means that to keep fixed protection Angela's pension rights on 5 April 2013
cannot be more than
£1,328,250 × 103/100 = £1,368,097.50.
At 5 April 2013 Angela's pensionable salary has increased by less than 0.5 per cent to £32,500. Her annual pension on 5 April 2013 is
36/80 × £132,500 = £59,625 pa.
Angela's has also built up a lump sum of
3 × £59,625 = £178,875.
This means the value of Angela's pension rights at 5 April 2013 is
(£59,625 × 20) + £178,875 = £1,371,375.
During the 2012-13 tax year Angela's pension rights have increased by more than the CPI increase. Angela has lost fixed protection from the date on which the value of her benefits exceeded £1,368,097.50.
