Protection

From April 2012 the standard Lifetime Allowance (LTA) will be reduced from the current level of £1.8 million to £1.5 million.  Members with existing protection will be unaffected in respect of the LTA but those without lump sum protection suffer a reduction in their Pension Commencement Lump Sum (PCLS).  Members without protection have until the end of the 2011-12 tax year to apply for Fixed Protection

Enhanced Protection

A member with Enhanced Protection does not have to pay the LTA charge if they crystallise benefits in excess of the LTA.  Those without lump sum protection may see a reduction in available PCLS from April 2012 as it is based on 25% of the crystallising fund within their remaining standard LTA using the reduced LTA amount.

Primary Protection

A member with Primary Protection has a personal enhanced LTA based on a multiple of the standard LTA.  From 6th April 2012, Primary Protection will continue to use a figure of £1.8 million in place of the standard LTA until such time as the standard LTA is increased beyond this amount.
Similarly protected lump sums, which increase in line with the increase in the standard LTA, will use a reference of £1.8 million until such time as the standard LTA is increased beyond this amount.
However those without lump sum protection may see a reduction in their available PCLS as it is based on 25% of the crystallising fund within their remaining standard LTA using the reduced LTA amount.
 
Scheme specific lump sum protection (block transfers)
This protection was for members of occupational pension schemes on 5th April 2006 who had a tax free cash entitlement of more than 25% of their pension fund.  The protected lump sum rights could be transferred to other schemes as part of a block or bulk transfers.
The current lump sum value is calculated using the increase in the standard LTA.  From 6th April 2012, the calculation will continue to use a figure of £1.8 million in place of the standard LTA until such time as the standard LTA is increased beyond this amount.

Fixed Protection

Fixed Protection provides the member with a personal enhanced LTA of £1.8million until such time as the standard LTA is increased beyond this amount.

Anyone without Enhanced or Primary Protection may apply for Fixed Protection and have until 6th April 2012 to do so.  To keep Fixed Protection, a member may not accrue further benefits, may not open a new pension arrangement other than to receive a transfer of existing benefits and is restricted on how they may transfer benefits.

With Fixed Protection in place, a member will not face a tax charge whilst crystallising benefits within their personal LTA of £1.8million.  Their lump sum will be calculated based on 25% of the crystallising fund within their remaining personal LTA of £1.8million
 

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Reduction in Lifetime  Allowance
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