Individual protection

Individual protection 2014 was introduced when the lifetime allowance was cut from £1.5 million to £1.25 million in 2014. When the lifetime allowance was cut again in 2016, another version of individual protection became available.

As part of our Bitesize Technical series, Senior Technical Consultant Lisa Webster looks at how both individual protections work under the new post-lifetime allowance regime.

Key insights on individual protection

Why was individual protection introduced?

When the lifetime allowance was cut from £1.5 million to £1.25 million in 2014, individual protection 2014 was introduced. This meant people with pension savings above the new incoming lifetime allowance could still access their pension up to the old level without any lifetime allowance tax charge.

What conditions needed to be met?

To be eligible to apply for individual protection 2014, a person’s total pension savings at 5 April 2014 must have been valued at more than £1.25 million, and the application made by 5 April 2017.

The level of protection granted was the 5 April 2014 valuation, up to a maximum of £1.5 million.

Unlike fixed protection, there were no restrictions on continuing contributions with individual protection.

What about the 2016 version?

When the lifetime allowance was cut again in 2016, individual protection 2016 was made available. For this version, total pension savings at 5 April 2016 needed to be more than £1 million, and the application made by 5 April 2025. The 5 April 2016 value was the level of protection granted, up to a maximum of £1.25 million.

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

The amount of protected lifetime allowance under the old rules now becomes the protected lump sum and death benefit allowance or LSDBA.

This means someone who holds individual protection will have a protected LSDBA of whatever their individual level of protection was.

Individual protection holders now have a protected lump sum allowance (LSA) of 25% of their individual protection. For example, a client with individual protection 2014 at £1.4 million will have a protected LSA of £350,000.

Those with individual protection 2016 may have had protection of less than £1,073,100. Where this is the case, the standard allowances apply so the individual doesn’t lose out.

More Bitesize Technical

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

Techcentre

The Techcentre is full of essential regulatory and legislative insights from our Technical Team. From articles and guides, to on-demand videos and events, it’s all there to help you understand the ever-changing pensions landscape.