Protection from the lifetime allowance charge: individual protections 2014 and 2016: essential principles
Due to the similarities in the principles of these two types of protection this guidance covers them both unless otherwise specified and the two types of individual protection are referred to collectively on this page as “the individual protection(s)”.
From 6 April 2014 the lifetime allowance was reduced to £1.25 million from the level of £1.5 million in tax year 2013-14. Similarly, from 6 April 2016 the lifetime allowance was reduced to £1 million from the level of £1.25 million in tax year 2015-16. As, in both cases, members might have already built up savings of more than £1.25/£1 million by 6 April 2014/6 April 2016, two new forms of protection called “individual protection 2014”(IP 2014) and “individual protection 2016 (IP 2016) were introduced.
If someone has the individual protections their lifetime allowance is fixed at an amount, known as the “relevant amount”, which
- for IP 2014 is equal to the value of their pension rights on 5 April 2014 provided these were more than £1.25 million,
- for IP 2016 the value of their pension rights on 5 April 2016 provided these were more than £1 million.
However, a member’s lifetime allowance under IP 2014 is limited to a maximum of £1.5 million where their relevant amount is greater than this and limited to £1.25 million for IP2016.
IP 2014 is available even if the member’s pension savings on 5 April 2014 are valued at more than £1.5 million. But, as the maximum protected lifetime allowance a member can have with IP 2014 is £1.5 million, any savings in excess of this will not be protected and will be subject to the lifetime allowance charge when they crystallise their benefits. Similarly, IP 2016 is available even if the member’s pension savings on 5 April 2016 are valued at more than £1.25 million. But, as the maximum protected lifetime allowance a member can have with IP 2016 is £1.25 million, any savings in excess of this will not be protected and will be subject to the lifetime allowance charge when they crystallise their benefits. See PTM081000 for more guidance on the lifetime allowance charge.
If, in future, the standard lifetime allowance rises to be more than £1.5 million for IP 2014 or £1.25 million for IP 2016 the member’s IP 2014 or IP 2016 will cease and their lifetime allowance will be the higher standard lifetime allowance.
People wishing to rely on IP 2014 have until 5 April 2017 to notify HMRC using the online application.
There is no deadline for people wishing to rely on IP 2016 to notify HMRC using the online application. However, people should be aware that the statutory obligation placed on registered pension schemes administrators by the IP 2016 legislation and which requires them to provide values for savings as at 5 April 2016 only applies for 4 years (see PTM164120). From 6 April 2020 therefore there is no such obligation and scheme administrators may be unwilling or unable (for example because they have deleted their records) to provide values as at 5 April 2016.