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LIFETIME ALLOWANCE PROTECTIONS
Primary Lifetime Allowance Protection
If you had built up pension rights of more than £1.5 million before 6 April 2006, you could have applied for primary protection. The closing date to apply for primary protection was 5 April 2009.
If you have primary protection, you are given a lifetime allowance enhancement factor. This is added to the normal lifetime allowance. So if, for example, you had built up rights of £3 million (twice the normal lifetime allowance on 6 April 2006) you would have an enhancement factor of +1.
This means you could take benefits worth twice the normal lifetime allowance without paying the lifetime allowance charge.
With primary protection the amount of your protection currently increases in line with the normal lifetime allowance. When the lifetime allowance goes down to £1.5 million the amount of your protection will stay the same, as your protection will, from April 2012, be linked to the current lifetime allowance of £1.8 million. If you have primary protection you will not be entitled to fixed protection.
If your pension rights are shared on divorce or dissolution of a civil partnership this will result in the individual Lifetime Allowance being reduced (or lost if it reduces to below the standard Lifetime Allowance).
Enhanced Protection
If you had built up pension rights of more than £1.5 million before 6 April 2006, you could have applied for enhanced protection. The closing date to apply for enhanced protection was 5 April 2009.
While you have enhanced protection you don't pay the lifetime allowance charge if your pension saving is more than the lifetime allowance. Whilst you have enhanced protection you will not be affected by the reduction in the lifetime allowance.
If the limit is exceeded you will pay tax on the excess. You will lose enhanced protection if you pay contributions into a money purchase pension arrangement (e.g. pay into the LGPS in house AVC facility) or if you start a new pension arrangement, or if you transfer your LGPS benefits to another defined benefit pension scheme. You can also voluntarily give up enhanced protection by giving notice that you no longer wish to keep it.
If you lose enhanced protection you must notify HMRC within 90 days. Failure to do so could result in a fine of up to £3,000.
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You will not lose enhanced protection if you were paying AVCs at 5 April 2006 purely for extra life cover and carry on doing so after that date provided the terms are not varied significantly from those that applied under the policy at 5 April 2006 so as to increase the level of life cover or extend the period during which such benefits are payable e.g. you do not adjust the premiums to purchase increased life cover.
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