Individual Protection |
Lump Sum and Death Benefit Allowance |
Lump Sum Allowance |
|---|---|---|
| 2014 | Between £1,250,000 and £1,500,000 |
Between £312,500 and £375,000 |
| 2016 | Between £1,073,100 and £1,250,000 |
Between £268,275 and £312,500 |
Pensions
Individual Protection
Last Updated: 6 Apr 26 10 min read
Individual Protections were introduced when the Lifetime Allowance reduced in 2014 and 2016. The protections carried over into the current pension regime after the abolition of the LTA on 6th April 2024.
Contents
1. Key Points
2. Introduction of Individual Protection
3. Impact of Lifetime Allowance abolition on Individual Protection
Key Points
- It is no longer possible to apply for either Individual Protection 2014 or Individual Protection 2016
- It’s possible to hold Individual Protections 14 and 16 with another form of protection such as fixed or enhanced protection.
- Individual Protection 14 and 16 may be reduced or lost if an individual becomes subject to a pension debit as a result of a pension sharing order following divorce.
- When a scheme member wants to take benefits they have to tell the scheme administrator that they have individual protection.
Introduction of Individual Protection
As a result of the reductions in Lifetime Allowance from £1.5m to £1.25m in 2014/15 and from £1.25m to £1.0m in 2016/17, four new transitional protection regimes were introduced: Fixed Protection and Individual Protection 2014 and 2016. This article will explore Individual Protection 2014 (IP14) and Individual Protection 2016 (IP16).
Impact of Lifetime Allowance abolition on Individual Protection.
The Spring Budget 2023 announced the abolition of the LTA from 6th April 2024.
Individual Protection continued into the new pension regime. It effects the amount of an individuals Lump Sum Allowance and Lump Sum and Death Benefit Allowance.
Unlike Fixed and Enhanced Protection it has always 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 Individual Protection is held, subject to the normal conditions for payment of these lump sums.
Individual Protection 2014
The closing date for IP14 was 5 April 2017.
Eligibility
Those who applied before 6 April 2017, with pension savings in excess of £1.25 million on 5 April 2014 and who did not hold Primary Protection were eligible. olders of IP 14 were issued with certificates by HMRC.
Interaction with other protections
It was not possible to apply for IP14 if Primary Protection was held.
It was possible to hold IP14 along with Fixed Protection 2012 or 2014. In that case Fixed Protection will take precedence. It is also possible to hold IP14 along with Enhanced Protection. In that case Enhanced protection will take precedence.
Operation of IP14
Successful applicants received a personalised lifetime allowance fixed at the value of their pension savings as at 5 April 2014 – the "relevant amount", which was capped at £1.5 million.
Prior to the abolition of the LTA IP14 worked such that the individual would benefit from a personalised lifetime allowance (LTA), instead of the standard LTA, for all purposes of Part 4 of Finance Act 2004. This personalised LTA was equal to the value of the individual's pension benefits as at 5 April 2014, subject to the cap.
Post LTA abolition the protected amount is used for the individual's LSA and LSDBA.
Unlike Enhanced, and both Fixed Protections it is possible to maintain contributions and accrual in pension schemes without losing IP14.
Calculating Protection with Individual Protection 14
In calculating IP14, benefits were valued in the same way they were valued for primary protection at A-day. There are worked examples of the valuation methods in chapter 3 of the Guidance Notes (PDF)
Reduction in or loss of IP14
There is only one situation where an individual may have IP14 protection reduced or lost. This is if, after 5 April 2014, an individual becomes subject to a pension debit as a result of a pension sharing order following divorce, as this will reduce the relevant amount. If this is after 6 April 2015 then, for IP14 purposes only, the debit is reduced by 5% for each complete tax year that has elapsed since 2013/14.
The member is required to notify HMRC of any pension debit applying. HMRC will issue a new certificate where the reduced amount is still over £1.25 million.
Where the reduced amount is lower than £1.25m then IP14 will be lost.
Notification must be made within 60 days, beginning with the date of the discharge notice relating to the pension debit. The legislation doesn’t specify how notification is made so post, phone or online. The member may be liable to penalties if they don’t notify HMRC within 60 days.
The individuals LSA and LSDBA going forward will presumably have to be recalculated based on the new "relevant amount".
Taking Benefits and IP14
When the member wants to take benefits they must tell the scheme administrator that they have individual protection. The scheme administrator is required to notify HMRC where individual protection has allowed more tax free lump sum to be paid to the individual than would have been allowed under the standard rules.
If an individual protection certificate has been lost by a member they can recover their individual protection reference details using their government gateway account.
Individual Protection 2016
The deadline for applying for Individual Protection 2016 was 5 April 2025 so it's no longer possible to apply.
Eligibility
Those with pension savings in excess of £1.0 million on 5 April 2016 and who do not hold Primary Protection, or IP14.
Interaction with other protections
It is not possible to hold IP16 with Primary Protection, or if IP14 is already held.
It is possible to hold IP16 along with Fixed Protection 2012, 2014 and 2016. In that case Fixed Protection will take precedence. It is also possible to hold IP16 along with Enhanced Protection. In that case Enhanced protection will take precedence.
Operation of IP16
Successful applicantsreceived a personalised lifetime allowance fixed at the value of their pension savings as at 5 April 2016 - the "relevant amount" which is capped at £1.25 million.
Prior to LTA abolition IP16 worked such that the individual will benefit from a personalised lifetime allowance (LTA), instead of the standard LTA, for all purposes of Part 4 of Finance Act 2004. This personalised LTA will be equal to the value of the individual's pension benefits as at 5 April 2016, subject to the cap.
Post LTA abolition the protected amount is used for the individual's LSA and LSDBA.
Unlike Enhanced and any Fixed Protection it is possible to maintain contributions and accrual in pension schemes without losing IP16.
The personalised LTA will be fixed.
Calcualting Protection with Individual Protection 16
In essence, benefits will were in the same way they were valued for primary protection at A-day.
Reduction in or loss of IP16
There is only one situation where an individual may have IP16 protection reduced or lost. This is if, after 5 April 2016, an individual becomes subject to a pension debit as a result of a pension sharing order following divorce, as this will reduce the relevant amount. If this is after 6 April 2017 then, for IP16 purposes only, the debit is reduced by 5% for each complete tax year since 2015/16 and the time of the pension debit.
A member in receipt of, or applying for, or is making an appeal in relation to IP16 is required to notify HMRC by means of the digital service, of any pension debit applying. Notification must be made within 60 days, beginning with the date of the discharge notice relating to the pension debit
Where the reduced amount is lower than £1.0 million then IP16 will be lost.
The individuals LSA and LSDBA going forward will have to be recalculated based on the new "relevant amount".
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