Enhanced protection fact sheet
The pension protection rules are very complicated. We recommend that you speak to an adviser if you are affected.
Definitions
What is A-Day?
6 April 2006 is often known as A-Day. It was the date on which multiple existing pension tax systems were overhauled and replaced with a new, single set of rules. It was the date on which the annual allowance and lifetime allowance were originally introduced. The lifetime allowance was abolished on 6 April 2024 and replaced with two new allowances:
- Lump Sum Allowance (LSA): This limits the amount most people can take as a tax-free lump sum during their lifetime.
- Lump Sum and Death Benefit Allowance (LSDBA): This limits the amount which can be taken as a tax-free lump sum during lifetime or following death before age 75.
Many people had accrued larger pensions under the pre A-Day rules and prior to the removal of the lifetime allowance, and it would have been unfair for them to face a potentially significant charge simply because the rules changed. This principle has resulted in various forms of lifetime allowance protection.
What is enhanced protection?
Enhanced protection is one of the original forms of lifetime allowance protection. It was introduced at A-Day to help make sure that people weren’t unfairly affected by the new pension rules.
Rules
Who was eligible to apply for enhanced protection?
Anyone could apply for enhanced protection, regardless of the value of their pensions. However, only benefits which were within pre A-Day limits could be protected.
Can I still apply for enhanced protection?
Probably not. The application window for enhanced protection was from 6 April 2006 to 5 April 2009. HMRC has a late application process for those with ‘reasonable excuses’ for missing the deadline; only very exceptional situations are likely to meet the criteria so many years later.
How does enhanced protection work?
Enhanced protection works differently from all of the other protections. The other protections give an individual a higher LSA and LSDBA; instead, enhanced protection exempts the holder from paying lifetime allowance charges.
Members who have enhanced protection with lump sum protection are entitled to a higher Pension Commencement Lump Sum (PCLS), however the value of the lump sum will be limited based on their pension value on 5 April 2023 or 5 April 2024, dependent on the type of protection held.
For clients who have enhanced protection but no lump sum protection, the entitlement for the 2024/2025 tax year is £375,000, less any lump sums already taken.
Everyone with a higher LSDBA, capped at the amount which could have been paid on 5 April 2024.
Can I lose enhanced protection?
Enhanced protection can be given up voluntarily, and it can also be lost.
Prior to the 2023/24 tax year you could lose your enhanced protection if you began to accrue new pension benefits. You could also lose your protection if you didn’t opt out of your employer’s auto-enrolment scheme within the statutory window each time you were enrolled. Enhanced protection was intended to protect pension funds which had already been built up under the pre A-Day rules and any subsequent investment growth. It wasn’t intended to allow people to build up further pension benefits after A-Day without having to worry about lifetime allowance charges. From the 2023/24 tax year, those who applied for enhanced protection prior to the 15 March 2023 would no longer lose their protection if they contributed to, joined or transferred to a registered pension scheme.
A detailed list of the ways you can lose enhanced protection is beyond the scope of this fact sheet. However, you can find more information by searching “enhanced protection cessation” (including the quotation marks) on www.gov.uk
We strongly recommend that you speak to a financial adviser before making any changes to your pension arrangements if you hold enhanced protection.