Enhanced protection

When the lifetime allowance was introduced back in 2006, enhanced protection was made available to protect pension savings from the newly-introduced lifetime allowance charge.

As part of our Bitesize Technical series, Senior Technical Consultant Lisa Webster looks at how this protection works under the new post-lifetime allowance regime.

Key insights on pension protection

Why was enhanced protection introduced?

Enhanced protection was introduced to protect pension savings built up before 2006 from the newly-introduced lifetime allowance charge.

What conditions needed to be met?

There was no minimum fund size required to apply for enhanced protection, but it did have strict conditions which meant that any new contributions made on or after 6 April 2006 would invalidate the protection. For this reason, it was usually only people with large funds, at least close to the original lifetime allowance of £1.5 million, who applied for the protection.

What was the benefit of holding enhanced protection?

The advantage was that, as long as the protection was still valid, there was no limit on the size of fund that was protected from the lifetime allowance charge.

Was there a deadline for applying?

To be eligible for enhanced protection, applications had to be made by 5 April 2009.

Could lump sum protection be held with enhanced protection?

It was also possible to have a protected lump sum alongside enhanced protection. This was the case if the amount of tax-free cash the holder was entitled to on 5 April 2006 was more than £375,000.

Have the conditions for holding enhanced protection changed?

Now that the lifetime allowance has been removed, it is possible for those with enhanced protection to contribute – and transfer – without breaking the protection. This has been the case since 6 April 2023.

What does holding enhanced protection mean now that the lifetime allowance has been abolished?

Where the pension member holds valid enhanced protection, their lump sum and death benefit allowance is set at the value of their uncrystallised funds at 5 April 2024.

If no lump sum protection is held, then the lump sum allowance for someone with enhanced protection is £375,000.

If the protection includes lump sum protection, when they come to take their pension commencement lump sum (PCLS), this is capped at the amount of PCLS that they could have taken on 5 April 2023. This will be the percentage stated on their certificate applied to their uncrystallised fund on this date. This amount could be significantly more than £375,000.

More Bitesize Technical

Want to snack on another technical insight? Start from the beginning of our latest series on death benefits, here.

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