Transitional protection

Produced by Tolley in association with John Hayward
  • (Updated for Budget 2021)
Transitional protection

The following Employment Tax guidance note Produced by Tolley in association with John Hayward provides comprehensive and up to date tax information covering:

  • Transitional protection
  • Introduction
  • The need for transitional protection
  • Primary protection
  • Enhanced protection
  • The lifetime allowance from 6 April 2011
  • Fixed protection
  • The lifetime allowance from 6 April 2014
  • Fixed protection 2014 (FP14)
  • Individual protection 2014 (IP14)
  • More...

Introduction

There is a lifetime limit on the total amount of pension value that can benefit from tax relief (see the Lifetime allowance and the lifetime allowance charge guidance note). Testing against the lifetime allowance takes place at a benefit crystallisation event. Generally, a benefit crystallisation event occurs when benefits are taken.

The levels at which the lifetime allowance have been fixed are as follows:

Tax YearAmount
2020/21–2025/26£1,073,100
2019/20£1,055,000
2018/19£1,030,000
2016/17–2017/18£1,000,000
2014/15–2015/16£1,250,000
2012/13–2013/14£1,500,000
2010/11–2011/12£1,800,000
2009/10£1,750,000
2008/09£1,650,000
2007/08£1,600,000
2006/07£1,500,000

From 6 April 2018, the lifetime allowance has increased annually in line with increases in the Consumer Price Index (CPI). This link between the CPI and the lifetime allowance has been removed with effect from 6 April 2021. The lifetime allowance is frozen at £1,073,100 for the tax years 2021/22 to 2025/26.

The need for transitional protection

At the time of the introduction of the limit, it was recognised that some people would have accrued pension rights that already exceeded the lifetime allowance of £1.5m. It was clear that without extending them, some form of protection would become subject to a lifetime allowance charge once benefits were taken. The result would effectively be the withdrawal of pension benefits that individuals may have been planning for and depending on.

Two forms of protection were initially introduced, namely:

  1. primary protection

  2. enhanced protection

Registration was necessary in order to benefit from one or both forms of protection.

Primary protection

Primary protection was designed for those who, as of 5 April 2006, already had pension rights that exceeded £1.5m. So long as those individuals registered for primary protection before 6 April 2009, they receive the benefit of an enhanced lifetime allowance calculated by reference to the value of the individual’s pension rights as of 5 April 2006.

The lifetime allowance would be enhanced by

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