Please note: the content on this page was updated following the publication of the Finance (No. 2) Act 2023. Furthermore, the Government has stated its intention to abolish the Lifetime Allowance (LTA) from the 2024/25 tax year. Once the details have been published, we will make the necessary updates to the page.

What is enhanced protection?

Enhanced protection was introduced by the Finance Act 2004 for individuals who had accrued pension benefits up to 5 April 2006 and from that date, had no contributions paid to any registered pension schemes and ceased membership of any final salary defined benefit schemes.

The pension funds of a pension scheme member with enhanced protection are not tested against the lifetime allowance, except, where the member's maximum tax-free cash lump sum entitlement in relation to all their registered pension schemes is limited to 25% of the greater of the standard lifetime allowance and £1.5 million.

When could you apply for enhanced protection?

Up to 5 April 2009, an individual could register for enhanced protection with HMRC whatever the total value of their pension savings in registered pension schemes as on 5 April 2006, provided they have no ‘relevant benefit accrual’ in any of their pension schemes on or after 6 April 2006. Therefore, those who registered not only included those with total pension savings at that date in excess of the new standard lifetime allowance (LTA) of £1.5 million but also those who believed that their pension savings, with investment growth alone, could exceed the standard LTA when they came to take their benefits in the future.

  • Relevant benefit accrual includes personal and employer contributions to money purchase schemes such as SIPPs and SSASs and benefit accrual in a defined benefit or cash balance scheme above a certain amount.
  • The pension savings of an individual with valid enhanced protection are not tested against the LTA (except in one particular instance which does not occur in pension schemes with Dentons), although there will be a limit on the maximum amount they can receive as a tax-free lump sum. 

How did enhanced protection work?

An individual with enhanced protection will not suffer any lifetime allowance excess tax charge when they take pension benefits in excess of the lifetime allowance. 

If an individual did not have enhanced protection and took pension benefits in excess of the lifetime allowance a tax charge would apply for example, if the lifetime allowance was exceeded by £500,000 then the tax charge of 55% (if taken as a lump sum) or 25% (if taken as income) would apply:

  • With a £500,000 excess taken as a lump sum a tax charge of 55% = £275,000
  • With a £500,000 excess taken as an income a tax charge of 25% = £125,000.

Can enhanced protection be lost?

Enhanced protection can be lost in the following circumstances:

  • where the individual has ‘relevant benefit accrual’ on or after 6 April 2006
  • a transfer of an individual’s benefits from one scheme to another that does not qualify as a ‘permitted transfer’, e.g., a transfer from a money purchase scheme to a defined benefit or a cash balance pension scheme. Please note: Permitted transfers include transfers from defined benefit schemes to money purchase schemes and transfers between money purchase schemes subject to satisfying certain requirements.
  • becoming a new member of a pension scheme and having relevant benefit accrual – please see auto-enrolment.

A transfer of rights from an individual’s pension scheme for an ex-spouse to another scheme following a pension sharing order on divorce, does not cause loss of the individual’s enhanced protection provided the transfer is a permitted transfer.

An individual can give up enhanced protection – normally because they wish, for one reason or another, to have contributions paid to a pension scheme – but must write and tell HMRC of this within 90 days of the protection being lost.

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