Pension protection overview

When the lifetime allowance was introduced back in 2006, two forms of pension protection were created, and further forms were added each time the lifetime allowance was cut.

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

Key insights on pension protection

Why were pension protections introduced?

In 2006, primary and enhanced protection were introduced to protect pension benefits from the new lifetime allowance charge where benefits had been built up under the old rules.

Were there any other benefits of having lifetime allowance protection?

As well as protecting from the lifetime allowance tax charge, the protections also allowed a higher level of tax-free cash to be taken.

What other forms of protection were available in 2006?

It was also possible to have what was called ‘scheme-specific lump sum protection’, which entitled holders to have more than 25% of their fund paid out tax-free.

What happened when the lifetime allowance was cut?

Further forms of protection were introduced when the lifetime allowance was later cut in 2012, 2014 and 2016. On each occasion there was a form of fixed protection, and in 2014 and 2016 individual protection was also available.

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

Although the lifetime allowance has now been abolished, holding these protections can still entitle the holder to higher levels of tax-free cash than would otherwise be available.

It can also improve the tax position on death – if the protection holder dies before age 75, it may mean that their beneficiaries have the option of having a higher level of lump sum death benefit paid to them before any excess becomes subject to income tax.

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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