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HMRC internal manual

Pensions Tax Manual

Protection from the lifetime allowance charge: protecting Pre-April 2006 pension rights: overview

Glossary PTM000001
   

Protection from the lifetime allowance charge for benefits built up before 6 April 2006
Enhanced protection
Primary protection
Enhanced protection with primary protection
Pension credits - entitlement received before 6 April 2006
Notifying HMRC of reliance on protection for benefits built up before 6 April 2006
Amending details
HMRC changes or cancels a certificate
Penalties

Protection from the lifetime allowance charge for benefits built up before 6 April 2006

Protection from the lifetime allowance charge for benefits built up before 6 April 2006 was available in two forms: enhanced protection and primary protection. An individual may choose the form of protection which best suits their personal circumstances. The choice is:

  • enhanced protection,
  • primary protection,
  • enhanced protection with primary protection, or
  • no protection.

For guidance on valuing rights at 5 April 2006 and for the rules on retained benefits please see the National Archive at http://webarchive.nationalarchives.gov.uk/20140504142140/http://www.hmrc.gov.uk/manuals/rpsmmanual/RPSM03101000.htm.

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Enhanced protection

Paragraphs 12 to 17A Schedule 36 Finance Act 2004

A claim for enhanced protection could be made by any individual with pension and/or lump sum rights in a tax-privileged scheme or contract, including those with pension rights of less than £1.5 million, on 5 April 2006.

Enhanced protection fully protects the value of an individual’s pension rights on 5 April 2006. This means that the rights will not be subject to the lifetime allowance charge when they are brought into payment. So if the value of the rights increases faster than the increase in the standard lifetime allowance, the individual will still be protected from the lifetime allowance charge. This is the main difference between primary and enhanced protection.

The constraints on what can be protected are described fully at PTM092410. Broadly, there must be no further accrual of defined benefits or cash balance rights above a specified level of indexation, and no contributions can be paid to increase pension rights in other money purchase arrangements. No benefits may be taken as a lifetime allowance excess lump sum (see PTM084000 for more detail) while a claim to enhanced protection is in place.

Once an individual has made a valid notification of the intention to rely on enhanced protection, it will remain in force until they lose it because:

  • they fail to comply with the conditions for enhanced protection, or
  • they notify HMRC that they no longer wish to be covered by enhanced protection.

When an individual loses enhanced protection, or no longer wishes enhanced protection to apply to them, they must notify HMRC.

Enhanced protection is explained in more detail at PTM092400.

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Primary protection

Paragraphs 7 to 11D Schedule 36 Finance Act 2004

A claim for primary protection could only have been made where an individual’s pension and/or lump sum rights in a tax-privileged scheme or contract were valued at more than £1.5 million at 5 April 2006.

Individuals claiming primary protection could continue to make tax-relieved contributions or to accrue further benefits under registered pension schemes after 5 April 2006.

Individuals with primary protection have a personal lifetime allowance which is greater than the standard lifetime allowance. This personal lifetime allowance is set according to the value of their pension rights on 5 April 2006. The lifetime allowance charge will apply only to benefits paid after their personal lifetime allowance has been used up. Until 5 April 2012, personal lifetime allowances under primary protection were automatically adjusted annually in the same way as the standard lifetime allowance. From 6 April 2012, the personal lifetime allowance is adjusted by reference to £1.8 million where this figure is greater than the standard lifetime allowance applying at the time benefits are taken.

Primary protection is explained in more detail at PTM092300.

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Enhanced protection with primary protection

Individuals with pension rights valued at more than £1.5 million on 5 April 2006 could have notified HMRC that they wish to claim both enhanced protection and primary protection. Where they did the claim for enhanced protection took precedence. The individual’s protection will operate on an enhanced protection basis unless and until it is lost.

When enhanced protection ceases, the individual’s protection defaults to primary protection for benefit crystallisation events after enhanced protection is lost. In some circumstances, primary protection will apply to the benefit crystallisation event which causes enhanced protection to be lost.

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Pension credits - entitlement received before 6 April 2006

Paragraph 18 Schedule 36 Finance Act 2004

Where an individual had become entitled to a pension credit before 6 April 2006, their lifetime allowance could be enhanced.

See PTM092200 for further details.

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Notifying HMRC of reliance on protection for benefits built up before 6 April 2006

Paragraphs 7(1)(b), 12(1) & 18(6) Schedule 36 Finance Act 2004

Regulations 10(1), 3(4), 4(4), 5(4) & 13(2 )The Registered Pension Schemes (Enhanced Lifetime Allowance) Regulations 2006 - SI 2006/131

To rely on protection for benefits built up before 6 April 2006, the individual must have made a notification to HMRC on the prescribed forms on or before 5 April 2009. An application could not have been made prior to 6 April 2006. Guidance applicable to making a notification, including how to make an application, HMRC review of information provided in and enquiries into notifications can be located on theNational Archives (external users see http://webarchive.nationalarchives.gov.uk/20140504142140/http://www.hmrc…).

See PTM098000 for guidance on late notifications.

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Amending details

Regulations 17 and 18 The Registered Pension Schemes (Enhanced Lifetime Allowance) Regulations 2006 - SI 2006/131

If after the individual has submitted their notification form to HMRC they realise that:

  • the information given in the notification is incorrect or has become incorrect, or
  • information given in connection with the notification is incorrect or has become incorrect

they must tell HMRC without undue delay.

HMRC can then revoke the first certificate and issue an amended certificate, which will supersede the first certificate.

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HMRC changes or cancels a certificate

Regulation 24 The Registered Pension Schemes (Enhanced Lifetime Allowance) Regulations 2006 - SI 2006/131

HMRC can revoke or amend a certificate at any time if after the certificate has been issued HMRC has reason to believe that any information given:

  • in the notification
  • in connection with the notification, or
  • in the certificate

either was incorrect or has become incorrect.

HMRC can also revoke or amend a certificate if the individual fails to reply to a notice for information within the time specified in the notice.

If HMRC revokes or amends a certificate they will give the individual notice that they have done this.

The individual can appeal against the amendment or revocation of the certificate. Under the appeal and review process either HMRC or, if necessary, a tribunal may decide whether the decision to amend or to revoke was right.

If the conclusion is that HMRC should not have revoked or amended a certificate as set out above then HMRC will issue a certificate to the individual from a date specified.

If HMRC revoked a certificate and the certificate should have been amended, HMRC will amend the certificate accordingly.

If HMRC amended a certificate and it is decided that the certificate should have been amended in different terms, HMRC will amend the certificate again.

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Penalties

Section 261 Finance Act 2004

An individual who fraudulently or negligently provides false or incorrect information in or documents in connection with a notification may be liable to a penalty.