The concept of Lifetime Allowance and subsequent protection was introduced after ‘A’ Day in 2006.
It was possible to apply for protection against a potential lifetime allowance charge. If you have successfully applied, you will have received a certificate from HM Revenue & Customs. If you have enhanced and primary protection you will have only one certificate. Enhanced protection will apply unless it is revoked or lost; it is no longer possible to apply for enhanced or primary protection. The advantage of this protection is that you will be able to crystallise your pension by moving to a Recognised Overseas Pensions Scheme (ROPS) without paying any Lifetime Allowance Charge. This is a substantial benefit for large pensions.
If the value of your UK pensions is at or near the Lifetime Allowance now (currently £1.25 Million and set to drop to £1 Million in April 2016) and you haven’t filed for protection, it is a good idea to apply to HMRC. Remember that if your pension is currently valued at £712,000, it will hit the £1 million level at 7% growth after only 5 years. The benefit of protection is that you will only have to pay the Lifetime Allowance Charge (25% to 55%) on the excess over and above your protection level. There is currently no cost for applying and the process can be completed online through the HMRC web site.
With Individual Protection 2014, it is possible to apply for individual protection against the drop in the lifetime allowance to £1.25 million. This enables you to set your allowance at the value of your pensions at 5 April 2014, up to £1.5 million, and continue to make contributions. When your pension is measured against the lifetime allowance, you use up a percentage of your personalised lifetime allowance. It is possible to have both fixed and individual protection 2014, however it is not available if you already have primary protection, including if held with enhanced protection.
You can apply on the HMRC website until 5 April 2017. For 2016 Protection it is expected that people will be able to apply for protection from the lifetime allowance fall to £1 million in 2016. Details will be available from Forth Capital in the near future.