This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

Pensions Tax Manual

Protection from the lifetime allowance charge: individual protections 2014 and 2016: essential principles

Glossary PTM000001
   

 
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.

Individual protection 2014 (IP 2014)

An individual with pension savings of more than £1.25 million on 5 April 2014 may apply for IP 2014 – see PTM094200 for guidance on how to apply for IP 2014. IP 2014 is available even if the member’s pension savings on 5 April 2014 are valued at more than £1.5 million.

If someone has IP 2014 their lifetime allowance is fixed at an amount, which is the lower of

  • value of their pension savings on 5 April 2014 (the relevant amount – see PTM094300), and
  • £1.5 million.

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.  

If, in future, the standard lifetime allowance rises to be more than the member’s protected lifetime allowance under IP 2014 the member’s IP 2014  will cease and their lifetime allowance will be the higher standard lifetime allowance.  

For example, on 5 April 2014 the value of Catherine’s pension savings (her relevant amount) was £1.6 million.  With IP 2014 Catherine has a protected lifetime allowance of £1.5 million.  Catherine would cease to be protected by IP 2014 if the standard lifetime allowance becomes more than £1.5 million.  On ceasing to be covered by IP 2014 Catherine’s lifetime allowance becomes the standard lifetime allowance.

In contrast Tom had pension savings on 5 April 2014 (his relevant amount) valued at £1.3 million.  With IP 2014 Tom has a protected lifetime allowance of £1.3 million.  If the standard lifetime allowance becomes more than £1.3 million Tom will cease to be protected by IP 2014 and his lifetime allowance becomes the standard lifetime allowance.   

Individual protection 2016 (IP 2016)

An individual with pension savings of more than £1 million on 5 April 2016 may apply for IP 2016 – see PTM094210 for guidance on how to apply for IP 2016.   IP 2016 is available even if the member’s pension savings on 5 April 2016 are valued at more than £1.25 million.

If someone has IP 2016 their lifetime allowance is fixed at an amount, which is the lower of

  • value of their pension savings on 5 April 2016 (the relevant amount – see PTM094310), and
  •  £1.25 million.

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. 

If, in future, the standard lifetime allowance rises to be more than the member’s protected lifetime allowance under IP 2016 the member’s IP 2016 will cease and their lifetime allowance will be the higher standard lifetime allowance.

For example, on 5 April 2016 Sinthuja has pension savings (her relevant amount) of £1.4 million.  With IP 2016 Sinthuja has a protected lifetime allowance of £1.25 million.  If the standard lifetime allowance becomes more than £1.25 million, Sinthuja ceases to be protected by IP 2016.  Her lifetime allowance becomes the standard lifetime allowance.

Steve had pension savings on 5 April 2016 (his relevant amount) valued at £1.1 million.  With IP 2016 Steve’s protected lifetime allowance is £1.1 million.  Steve will cease to be protected by IP 2016 if the standard lifetime allowance becomes more than £1.1 million.  His lifetime allowance would become the standard lifetime allowance.

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.

Losing or reduction of individual protection

An individual with either IP 2014 or IP 2016 who becomes subject to a pension debit as a result of a pension sharing order may have their level of protection reduced or lose protection altogether.  PTM094400 explains what happens if an individual with individual protection has a pension debit.