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Pension lifetime allowance history and protections

Introduction  

This briefing sets out the history of the lifetime allowance (LTA) and the various lifetime allowance protections that individuals may hold or may be able to apply for if they meet certain criteria. 

Core considerations 

  • The lifetime allowance was the overall limit on total pension savings an individual can accumulate without suffering an extra tax charge. 
  • It is currently set at £1.0731 million, although for tax year 2023/24 no lifetime allowance charges apply.  
  • The lifetime allowance was introduced on 6 April 2006. When it was introduced, individuals were able to apply to for transitional protections to protect existing benefits against it. These were known as Primary Protection and Enhanced Protection. 
  • The lifetime allowance was initially £1.5m and peaked at £1.8m. Since then, each time it has reduced a form or protection has been offered – either Fixed Protection Individual Protection or both.
  • A lifetime allowance enhancement may also be available in some situations, such as where an individual receives a pension credit following a divorce and where contributions were made while the member was non UK resident    

Contents


The lifetime allowance history

The lifetime allowance (LTA) was introduced on 6 April 2006. It imposed a limit on total pension savings an individual can take without triggering an extra tax charge. The standard LTA was originally set at £1.5m. It was increased and then capped at £1.8m in 2010/11. It has subsequently been reduced three times and is now set at a level of £1.0731m. The amount of the standard LTA over time is listed in HMRC’s Pensions Tax Manual PTM081000.   

For tax year 2023/24 no LTA charges apply, and the intention is to remove the LTA altogether from tax year 2024/25. 

When the LTA was first introduced two forms of protection were offered, Enhanced Protection and Primary Protection. When it reduced from £1.8 to £1.5m it was possible to apply for Fixed Protection. With the reductions from £1.5m to £1.25m and the later reduction to £1m, two new rounds of Fixed Protection were offered along with Individual Protection 2014 and Individual Protection 2016. While LTA charges no longer apply the protected allowances are still relevant for calculating the availability of tax-free lump sums.   

Only Fixed Protection 2016 and Individual Protection 2016 are still available for new applications.
 

Primary Protection

This is one of the transitional protections offered when the LTA was introduced on 6 April 2006.  

This was only available for those whose pension benefits were valued at more than £1.5m on 5 April 2006 and created a personal LTA expressed as a Primary Protection factor (an addition to the standard LTA). Due to the reduction in the LTA, from 6 April 2012, the LTA used to calculate the level of personal lifetime allowance remains £1.8 million.

For example

If the value of an individual’s pension rights valued at 5 April 2006 and eligible for Primary Protection were £2.4m the Primary Protection factor would be 0.6 (the factor is rounded up to two decimal places). This is calculated by (£2,400,000 - £1,500,000)/£1,500,000. The factor would be applied to an LTA of £1.8m so the individual’s allowance would be £2,880,000 assuming no benefits have been taken. 


Primary protection had to be applied for no later than 5 April 2009 and HMRC issued a certificate to the individual indicating the Primary Protection factor and, if appropriate, the amount of protected lump sum. 
 

Enhanced Protection

Enhanced protection was another way of protecting pension benefits on 5 April 2006 irrespective of their value. In order to benefit from this protection the value of an individual’s uncrystallised rights could not have exceeded the value of the maximum permitted pension under pre 6 April 2006 rules. In addition, no further benefit accrual could occur (for example, contributions to any money purchase scheme) between 6 April 2006 and 5 April 2023.  

Enhanced protection had to be applied for no later than 5 April 2009 and HMRC issued a certificate to the individual confirming Enhanced Protection had been claimed. It also showed the percentage of benefits coming into payment that can be paid as a pension commencement lump sum (tax free cash) if this exceeded £375,000. Where tax free cash protection applies, the protected amount is limited to the value that could have been paid on 5 April 2023.   

Since 6 April 2023 those with Enhanced Protection could make contributions or receive benefit accrual without losing the protection. Note that additional contributions will not result in additional tax free cash due to the cap in place from 5 April 2023.

 

Fixed Protection

There have been three rounds of Fixed Protection. These were made available when the LTA was reduced from £1.8m to £1.5m on 6 April 2012, then to £1.25m on 6 April 2014 and then to £1m on 6 April 2016. Fixed Protection allows individuals to retain a personal LTA of the amount before the reduction relevant to the protection applied for.  Fixed protection cannot be combined with Enhanced or Primary Protection but can be combined with Individual Protection. It is no longer possible to apply for Fixed Protection 2012 or 2014, but it is still possible to apply for Fixed Protection 2016 which can only be done online – details can be found on GOV.UK.   

It is currently proposed that it will no longer be possible to apply for Fixed Protection 2016 from 6 April 2025.  

Eligibility for Fixed Protection is not dependent on a minimum value of benefits when the LTA was reduced. Like Enhanced Protection, Fixed Protection was generally lost if there is further benefit accrual after the protection took effect and before 5 April 2023. Those who had protection in place on 15 March 2023 can make further contributions or receive benefit accrual from 6 April 2023, without losing Fixed Protection.  

Where new applications for Fixed Protection are made after 15 March 2023, further contributions or benefit accrual will lead to the loss of protection.
 

Individual Protection

There have been two rounds of Individual Protection. Individual protection is available to those without Primary Protection or a previous form of Individual Protection. It can be combined with Enhanced Protection or any form of Fixed Protection. 

Individual Protection 2014 was available to those with relevant pension values of more than £1.25m on 5 April 2014. It allows individuals to retain that relevant amount as their LTA, subject to a maximum of £1.5m. 

Individual Protection 2016 is available to those with relevant pension values of more than £1m on 5 April 2016. It allows individuals to retain that relevant amount as their LTA, subject to a maximum of £1.25m.  

Individual Protection 2014 can no longer be applied for but it is still possible to apply for Individual Protection 2016, which can only be done online  – details can be found on GOV.UK

It is currently proposed that it will no longer be possible to apply for Individual Protection 2016 from 6 April 2025.  

Individual Protection can be reduced or lost following an order for pension sharing on divorce.
 

LTA enhancement factors

It is possible to apply for an LTA enhancement factor in the following circumstances: 

  • where the individual receives a pension credit on divorce from funds that have already been crystalised. Details of the credit, how it is calculated and how to apply for it can be found in HMRC’s Pensions Tax Manual PTM095200
  • a relevant overseas individual may be able to qualify for a non-residence LTA enhancement where contributions have been made to a UK scheme without the benefit of UK tax relief. Details can be found in HMRC’s Pensions Tax Manual PTM095310
  • where an individual transfers benefits from a recognised overseas scheme (ROP) to a UK registered scheme they may be entitled to a recognised overseas transfer factor Details can be found in HMRC’s Pensions Tax Manual PTM095410.  

While a LTA enhancement factor gives extra LTA, it doesn't increase the amount of tax-free lump sum available. This will be based on 25% of the standard LTA, or any protected LTA under Fixed or Individual protection.  

 

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