Fixed protection

In 2012, 2014 and 2016 the government reduced the level of the Lifetime Allowance. Alongside the reduction they introduced Fixed Protection (FP) regimes.

These protections allowed those, who expected their benefits to be in excess of the reduced standard LTA when they took them, to secure a higher LTA and mitigate any LTA charges. 

Anyone could apply for Fixed Protection, regardless of the value of their funds. Assuming they kept their protection, and did not lose it, It had the effect of eliminating/reducing any lifetime allowance charge.

All the protections operate in the same manner except with different protected amounts and application deadlines.

Broadly, all pension funding and accrual had to stop.

Lump sum rights were linked to available LTA so having a Fixed Protection increased the amount of tax free lump sums potentially payable. 

Fixed Protection 2016 had to be applied for before 6 April 2025.

The Spring Budget 2023 announced the abolition of the LTA from 6th April 2024.

Fixed Protection continued into the new pension regime. It effects the amount of an individual's Lump Sum Allowance and Lump Sum and Death Benefit Allowance. 

As part of the abolition of the LTA anyone who applied and held Fixed Protection as at 15th March 2023 could no longer lose their protection with effect from 6th April 2023. Since then it has been possible to make contributions and accrue benefits without losing the protection.

Scheme Specific Protected Tax Free Cash and Standalone Lump Sums can both be paid when Fixed Protection is held, subject to the normal conditions for payment of these lump sums.

As explained above, it was (and still is) possible to lose Fixed Protection if certain events happened between 5th April 2006 and 6th April 2023.

From 6th April 2023 anyone who had applied for the protection prior to 15 March 2023, will not lose their protection in the way they previously could have. Those who applied after 15th March 2023 can still lose their protection if they have a cessation event.

Fixed Protection Cessation Events

• if there is benefit accrual which exceeds the permitted limit defined as relevant benefit accrual.
• if contributions are made to any defined contribution arrangement, including any employer / third party contributions (there are some exceptions to this rule).
• if a new arrangement is set up for the member (except in the case of certain transfers).
• if certain "non-permitted" transfers were made.

If the individual breaches one of these conditions, they will lose their Fixed Protection. The individual must tell HMRC.

If Fixed Protection has been lost then it is the individual's responsibility to inform HMRC. The member must do this within 90 days of the loss of Fixed Protection. If the member does not do this HMRC may issue a penalty of up to £300 for failure to notify and additional daily penalties of £60 per day after the initial penalty is raised.

When Fixed Protection is/was lost:

• any future benefit crystallisation events (BCE) that breached the standard LTA would have been subject to a lifetime allowance charge
• the availability of LSA & LSDBA would be based on standard rules unless another protection applies
• any future RBCEs will be subject to the standard rules unless another protection applies
• if the member has Individual Protection 2014 (IP14) or Individual Protection 2016 (IP16) this would act as dormant protection, so on the loss of fixed protection they would revert to IP14 or IP16
• any future tax-free amounts would be based on the standard rules.

Any earlier events that occurred with the benefit of Fixed Protection do not need to be revisited.

The legislation for Individual Protection (2014 and 2016) provides for both protections to be held simultaneously (restricted to one of each for IP and FP). 

In this case, the IP will act as dormant protection in the event that FP is lost. This will prevent a fall in LTA from as much as £1.8 million to the standard Lifetime Allowance and instead provide a personal lifetime allowance based on the value of pension savings at 5 April 2014 (capped at £1.5m), or 5 April 2016 (capped at £1.25m) as applicable.

For those who applied for their FP prior to 15th March 2023 then the concept of loss of protection has become irrelevant but this could be relevant for applications made after that date.

For further information on IP14 and 16 – please refer to our article on Individual Protection.