HMRC have launched their formal online process allowing individuals to apply for protection from the reduced lifetime allowance (LTA) of £1m. Protection can be applied for at any time, but will be needed prior to taking retirement benefits from a scheme.
As a reminder, there are two protections that can be applied for:
Fixed protection 2016 allows an individual to retain an underpinned LTA of £1.25m as long as they have no further accrual in defined benefit schemes other than (broadly) CPI revaluation, and make no further contributions to defined contribution schemes.
Individual protection 2016 (IP16) allows individuals with pension savings already worth more than £1m to have a personal LTA equal to the value of their benefits on 5 April 2016 subject to an overall maximum of £1.25m. Individuals with IP16 do not have to stop building up benefits in registered pension schemes.
In both cases, the protected LTA remains fixed. If the standard LTA rises back above it in the future, the individual would revert to the standard LTA.
To apply for either/both of these protections, individuals should complete the online application form. They will need an HMRC Online Services Account. To create an account, or login to an existing one, they will need to visit HMRC services: sign in or register. Those wishing to apply for IP16 will need to supply a value of their total pension savings as at 5 April 2016.
When an individual successfully applies for protection HMRC will provide them with a reference number which they will need to keep and supply to their pension scheme administrators. There is no deadline for applications, though individuals will need to have the protection before they take any benefits from a scheme.
HMRC operated an interim protection process for individuals retiring between April and July 2016. Anyone who took advantage of this process should now make the full online application and supply the reference number to their scheme once they have it. HMRC have confirmed scheme administrators will not have to revisit LTA calculations for members who used the interim process but then fail to complete a full online application for protection.
Note that individuals whose total pension savings were worth more than £1.25m on 5 April 2014 can still apply for individual protection 2014 (IP14) which would give them an LTA of their pension value on 5 April 2014, subject to a maximum of £1.5m. The deadline for applications for IP14 is 5 April 2017.
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