Lifetime Allowance Protection

Lifetime Allowance Protection

From 6 April 2016 when the lifetime allowance reduces to £1m (from £1.25m 2015/1016)there will be two lifetime allowance protection regimes available Individual Protection 2016 (IP2016) and Fixed Protection 2016 (FP2016).  There will be no application deadline for these protections.  However you will need to apply for protection before you take your benefits as you will need the HMRC reference number if you want to rely on the protection.  This means that if you wish to rely on IP2016 or FP2016 you should apply before you take any pension benefits on or after 6 April 2016.  This is so that those benefits can be tested against the higher Lifetime Allowance (LTA) provided by these protections rather than the £1 million standard LTA.  This applies even when the benefits being taken are worth less than £1 million.
If you don’t have the reference number (see interim process below) then the amount of the benefit crystallisation event will be expressed as a percentage of £1 million, rather than the higher protected LTA.

From July 2016 you will be able to apply for protection online.  You will no longer receive a lifetime allowance protection certificate, instead the online service will provide you with a reference number which you will need to keep.

HMRC are also introducing an online service for scheme administrators to check the protection status of their scheme members.  HMRC will continue to work with scheme administrators to ensure information about lifetime allowance protections reaches members.

Interim process

There will be a period between the new protection regimes becoming available in April 2016 and the introduction of the new online self-service in July 2016.  For this period HMRC will introduce an interim process for pension scheme members who want to take benefits before the introduction of the new online service.  Scheme members will be able to write to HMRC between April 2016 and July 2016 and they will check the details of their protection and respond to the member in writing.  This can then be presented to the scheme administrator in advance of the full application being made after July 2016.

Individual Protection 2014

You can still apply for Individual Protection 2014 to protect any pension savings built up before 6 April 2014 from the LTA charge (subject to an overall maximum of £1.5 million).

Applications can be made online and there is an online tool to help individuals decide whether to apply for IP2014.