Pension savings and lifetime allowance protection

Most people won't have pension savings worth more than the £1.25 million lifetime allowance. If your pension savings are worth more than this when you take your benefits, you'll have to pay the lifetime allowance tax charge on the excess unless you have some form of lifetime allowance protection.

On this page:

Types of lifetime allowance protection

Pension savings before 6 April 2006

Some people had built up pension pots worth more than £1.5 million before 6 April 2006 when the lifetime allowance was introduced. Lifetime allowance protection was introduced so that they didn't have to pay the lifetime allowance tax charge on pension pots built up before this date. There are two main types of protection for pension pots built up before this date, these are:

  • primary protection
  • enhanced protection

Pension savings before 6 April 2012

The lifetime allowance gradually increased to £1.8 million by 2010 to 2011 but from 6 April 2012 the lifetime allowance was reduced to £1.5 million. A new form of protection called fixed protection was introduced to protect those who had built up, or thought they may build up, pension pots of more than £1.5 million but no more than £1.8 million.

Pension savings before 6 April 2014

From 6 April 2014 the lifetime allowance is reduced to £1.25 million. A new form of protection called fixed protection 2014 was introduced to protect those who had built up, or think they may build up, pension pots of more than £1.25m but no more than £1.5 million. A further form of protection called individual protection 2014 will also apply from 6 April 2014. For those with pension savings above £1.25 million it will provide protection of those savings with a value on 5 April 2014 of between £1.25 million and £1.5 million. Unlike fixed protection and fixed protection 2014, a person with individual protection 2014 can continue to accrue unlimited further pension benefits or pay contributions without losing their protection.

Pension savings that didn't qualify for UK tax relief

You may also be able to have lifetime allowance protection for pension savings that didn't qualify for UK tax relief. You may also be able to get it if you're given pension savings that have already been tested against the lifetime allowance.

Lifetime allowance rates for previous tax years

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Primary protection

Primary protection gives you an enhanced lifetime allowance, which means you can have more pension savings without paying the lifetime allowance charge. You can only have primary protection if you had built up pension savings of more than £1.5 million before 6 April 2006. You should have applied for primary protection before 6 April 2009.

If you have primary protection you can also have enhanced protection, but not fixed protection.

You can't give up primary protection to get fixed protection instead. However, you can lose it if you get divorced and your pension savings are reduced below £1.5 million because of a pension sharing order.

Calculating your enhanced lifetime allowance

You're given a lifetime allowance factor based on the value of your pension savings on 5 April 2006. This factor is worked out on the difference between your savings on 5 April 2006 and the lifetime allowance for 2006-07 of £1.5 million.

Your revised lifetime allowance limit is worked out using the following formula:

(1+ lifetime allowance factor) x £1.8 million.

If in the future the lifetime allowance increases so that it is worth more than £1.8 million the calculation of your revised lifetime allowance limit changes to

(1+ lifetime allowance factor) x lifetime allowance.

Example

Judy's pension savings were £2.55 million on 5 April 2006.

This was 1.7 times the £1.5 million lifetime allowance rate for 2006-07.

This means her lifetime allowance factor is calculated as 0.7. If her savings had been 1.9 times the £1.5 million rate, the factor would have been 0.9.

The maximum amount of pension savings she can take without paying the lifetime allowance charge is calculated as
(1 + 0.7) x £1.8 million = £3.06 million.

This means that while the lifetime allowance is worth less than £1.8 million, Judy can take pension savings of £3.06 million without paying the lifetime allowance charge.

If for example, Judy took her pension when the lifetime allowance is £1.9 million, the maximum amount of pension savings she can take without paying the lifetime allowance charge is calculated as

(1 + 0.7) x £1.9 million = £3.23 million.

Primary protection certificate

Unless you applied for enhanced protection, you'll have been sent a certificate showing your enhancement factor. If you applied for primary and enhanced protection you'll have been sent a certificate showing that you have enhanced protection. Enhanced protection takes precedence over primary protection. If you lose or give up enhanced protection you must tell HM Revenue & Customs (HMRC). They will then send you your primary protection certificate.

Primary protection and protection of lump sums over £375,000

Normally the total of all your tax free lump sums can't be more than 25% of the standard lifetime allowance or, from April 2014, 25% of £1.5 million so long as the lifetime allowance is below this figure.

If you had the right to take a tax free lump sum of more than £375,000 (25% of the £1.5 million lifetime allowance for tax year 2006 to 2007) from your pension savings on 5 April 2006, you were also able to have this right protected along with primary protection. Your primary protection certificate will tell you the amount of your protected lump sum if you have this protection.

Technical guidance on primary protection

Lump sums - primary protection

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Enhanced protection

If you have enhanced protection you won't have to pay the lifetime allowance charge but there are restrictions on what you can do with your pension savings if you want to keep this protection. You should have applied before 6 April 2009 to get this protection.

You'll lose your enhanced protection if after 5 April 2006 you:

  • have a contribution paid to any of your money purchase pension pots
  • build up new benefits in a defined benefits or cash balance pension pot above a maximum amount - more in the link below
  • join a new pension scheme - unless you're only transferring pension savings from one of your existing schemes into the new scheme
  • start saving in a new pension pot either under an existing pension scheme or a new pension scheme

There are also restrictions on transferring your pension savings. For example, if you transfer savings from a money purchase pot and the pension pot receiving the transfer isn't a money purchase scheme you'll lose your protection. Find out more about which transfers will cause you to lose protection by following the links below.

You can also choose to give up enhanced protection. If you lose or give up enhanced protection you must tell HMRC.

Enhanced protection and protection of lump sums over £375,000

Normally the total of all your tax free lump sums can't be more than 25% of the standard lifetime allowance or, from April 2014, 25% of £1.5 million for so long as the lifetime allowance is below this figure.

If you had the right to take a tax free lump sum of more than £375,000 from your pension savings on 5 April 2006 (25% of the £1.5 million lifetime allowance for tax year 2006 to 2007) you could apply to have this right protected along with your enhanced protection. Your enhanced protection certificate will tell you what percentage of your pension savings you may be able to take as a lump sum if you have this protection.

Technical guidance on building up benefits that cause loss of enhanced protection

Technical guidance on transfers that cause you to lose enhanced protection

Lump sums - enhanced protection

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Fixed protection

Your lifetime allowance is fixed at £1.8 million with fixed protection. This means you can take pension savings worth up to £1.8 million without paying the lifetime allowance charge. You had to apply before 6 April 2012 to get fixed protection.

You can't have fixed protection if you have either primary or enhanced protection.

You can't give up fixed protection but from 5 April 2012 you'll lose it if you:

  • have a contribution paid to any of your money purchase pension pots
  • build up new benefits in a defined benefits or cash balance pension pot above a set amount - find out more by following the link below
  • join a new pension scheme - unless you're only transferring pension savings from one of your existing schemes into the new scheme
  • start saving in a new pension pot either under an existing pension scheme or a new pension scheme

There are also restrictions on transferring your pension savings. Find out more about which transfers will cause you to lose fixed protection using the link below.

Technical guidance on when you lose fixed protection due to benefit accrual (Opens new window)

Technical guidance on transfers that trigger loss of fixed protection (Opens new window)

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Fixed protection 2014

Fixed protection 2014 works in a similar way to the existing fixed protection regime introduced in April 2012. From 6 April 2014 the standard lifetime allowance was reduced from £1.5 million to £1.25 million but with fixed protection 2014 your lifetime allowance is fixed at £1.5 million. This means you can take pension savings worth up to £1.5 million without paying the lifetime allowance charge. You had to apply before 6 April 2014 to get fixed protection 2014.

You could not have fixed protection 2014 if you already had primary, enhanced or fixed protection. You'll lose fixed protection 2014 if you:

  • have a contribution paid to any of your money purchase pension pots
  • build up new benefits in a defined benefits or cash balance pension pot above a set amount
  • join a new pension scheme - unless you're only transferring pension savings from 1 of your existing schemes into the new scheme
  • start saving in a new pension pot either under an existing pension scheme or a new pension scheme

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Individual protection 2014

The government announced that individual protection 2014 will be available when the lifetime allowance is reduced to £1.25 million for 2014-15. Individual protection 2014 will operate from 6 April 2014, for those with pension savings valued at over £1.25 million on 5 April 2014.

Individual protection 2014 will give a protected lifetime allowance equal to the value of your pension rights on 5 April 2014 - up to an overall maximum of £1.5 million. You will not lose individual protection 2014 by making further savings in to your pension scheme but any pension savings in excess of your protected lifetime allowance will be subject to a lifetime allowance charge.

You'll be able to apply for individual protection 2014 from 18 August 2014. Your application must be received by HMRC no later than 5 April 2017.

You can hold both fixed protection 2014 and individual protection 2014.You can also hold individual protection while holding either enhanced protection or fixed protection but you can't apply for individual protection if you already hold primary protection.

For more information on individual protection 2014 follow the links below.

Lifetime allowance checking tool

Apply for individual protection 2014: do it online

Pensions: Individual Protection 2014 - GOV.UK website (Opens new window)

Lifetime allowance protection and automatic enrolment

Employers have to start enrolling employees into a pension scheme from October 2012.

If you have either enhanced or fixed protection and don't opt out of the pension scheme within one month of automatic enrolment you'll lose your protection. Your employer should tell you when you're automatically enrolled into a pension scheme.

More about automatic enrolment - GOV.UK website (Opens new window)

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Other types of lifetime allowance protection

You may also have a lifetime allowance protection if:

  • you got divorced and were given a pension credit before 6 April 2006
  • you've been paying into a UK registered pension scheme but didn't get UK tax relief because you weren't resident in the UK
  • you transferred benefits into a UK registered pension scheme from certain overseas schemes

You may be able to get lifetime allowance protection if you divorced after 5 April 2006 and got a pension credit and both the following apply:

  • it comes from a pension pot that is already paying a pension
  • the pension was put into payment after 5 April 2006 and so has already been tested against the lifetime allowance

If one of these applies to you, you can apply for a lifetime allowance enhancement factor. If you meet the conditions you'll receive a certificate from HMRC showing your enhancement factor.

You needed to apply before 5 April 2009 for an enhanced factor if you received a pension credit before 6 April 2006.

The closing date for the other types of lifetime allowance protection is five years after 31 January following the end of the tax year when the event took place. For example, if you transferred savings into a UK scheme from an overseas scheme on 5 August 2009 the closing date for an enhanced lifetime allowance application will be 31 January 2016.

Technical guidance on lifetime allowance protection if you divorced before 6 April 2006

Technical guidance on when you may have a higher lifetime allowance if you divorced after 5 April 2006

Technical guidance on protection if you have transferred benefits to the UK from an overseas pension scheme

Technical guidance on when you may have protection if you paid into a UK scheme whilst you weren’t UK tax resident

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Taking your pension pot using lifetime allowance protection

When you want to start taking your pension you should let your scheme administrator know what form of protection you have. You'll also need to give them your protection certificate number.

If you don't give them this information you may:

  • end up paying a lifetime allowance charge
  • not get the right tax free lump sum - if you have lump sum protection

More useful links

Types of pension schemes

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