Pension funding options

(opens in a new window)

Covers enhanced protection (5 mins) and primary protection (6 mins)

Shortened demo course. See details at foot of page.

Relevant benefit accrual

In return for this valuable protection the individual must cease all relevant benefit accrual under registered pension schemes after 5 April 2006.

For money purchase arrangements this broadly means that no contributions can be paid to the scheme after 5 April 2006. The only exceptions are that NI rebates to existing contracted-out plans can continue as can contributions t...

Shortened demo course. See details at foot of page.

Claiming enhanced protection

To claim enhanced protection, individuals had to submit a form APSS200 to HMRC no later than 5 April 2009. If protection was granted then HMRC issued a certificate to the individual confirming their protection.

Losing enhanced protection

Enhanced protection is revoked if:

Relevant benefit accrual takes place

A transfer is made that is not a permitted transfer

The individual informs HMRC that they wish to revoke it.

How can enhanced protect be revoked?

Answer : Purchase course for answer

The primary protection factor

The primary protection factor is the increase to the standard lifetime allowance for someone with primary protection. The factor is calculated as:

(A-Day benefit value - £1.5m)/£1.5m

Whenever benefits are crystallised, this factor is applied to the standard lifetime allowance to give the personal lifetime a...

Shortened demo course. See details at foot of page.

Losing primary protection

An individual cannot voluntarily give up primary protection. The only way that primary protection can be lost is if a pension share on divorce has the effect of reducing the individual’s personal lifetime allowance below 100%.

Impact of the reduction of the lifetime allowance from 6 April 2012

The reduction of the lifetime allowance from 6 April 2012 has made transitional protection more important than it originally appeared and individuals who registered by 6 April 2009 for primary and/or enhanced protection are not affected by the change. For primary protection a lifetime allowance of £1.8 million will still be used when calculating their personal lifetime allowance enhancement factor.

Where an individual applied for both enhanced and primary protection which of them took priority?

Answer : Purchase course for answer

There are however three types of pension commencement lump sum rights that can be given transitional protection:

Where a member elected for primary protectio n any pension commencement lump sum (PCLS) entitlement (up to 25% of the fund value) also had to be registered for primary protection. The member's pension commencement lump sum entitlement is calculated as at 6 April 2006 and this amount will be increased each year in line with increases in the lifetime allowance.

Primary protection example

Dennis has a registered PCLS of £500,000 under primary protection. He decides to crystallise his benefits in tax ye...

Shortened demo course. See details at foot of page.

Scheme-specific lump sum protection example

John had benefits worth £100,000 at A-Day including a protected PCLS of £50,000. He continues to fund his pension until he decides to draws it in tax year 2011/12 when his fund is worth £200,000 and the lifetime allowance is £1.80m.

John’s protected PCLS is £60,000 i.e. £50,000 x (1.8/1.5) and his additional PCLS is £20,000 i.e. 25% x [£200,000 – (£100,000 x 1.8/1.5)]). So John can take a PCLS of up to £80,000.

Which type of pre A-Day pensions could have built up a pension commencement lump sum entitlement of greater than 25% of the value of pension benefits and therefore benefit from scheme specific protection?

Answer : Purchase course for answer