How to Protect Pension Savings with Individual and Fixed Protection
This article looks at how you can protect existing savings or future pension savings by using Individual and Fixed Protection to avoid any LTA charge that would normally apply. This article will be useful reading for those planning to take any of the CII J05, R04, AF7 or AF8 units.
This article is relevant to examinable tax year 2021/22.
Individual Protection
Individual Protection 2016 (IP16) was introduced when the LTA came down from £1.25m to £1m in April 2016. It was designed for those people who did not have Primary Protection but had pension savings of more than £1m on 5 April 2016. IP16 gives a personal LTA of between £1m and £1.25m (maximum) based on the value of pension savings on 5 April 2016. (Any crystallised benefits above the IP16 limit will be subject to the normal LTA charges).
With Individual Protection, the member can still make contributions into defined contribution schemes, and benefit accrual can also continue in a defined benefit scheme after April 2016.
It has been possible to make an online election for IP16 since July 2016, and currently, there is no application deadline.
Fixed Protection
Fixed Protection 2016 was designed for those who didn’t have Primary, Enhanced or Fixed Protection 2012 or 2014 with funds likely to be more than the reduced LTA when benefits are crystallised. FP16 protects benefits up to the greater of £1.25m and whatever the standard LTA is when benefits are crystallised. It also means PCLS of up to 25% of £1.25m can be taken rather than 25% of the current lifetime allowance (£1,073,100 for 21/22 tax year).
The difference between the two is that with Fixed Protection, the member could no longer make pension contributions or accrue further benefits in a defined benefit scheme above a set percentage after 5 April 2016.
Elections for FP16 can also be made online, and currently, there is no application deadline.
If someone can apply for both FP16 and IP16 they should do so; this is because if FP16 is lost at any point in the future, then they still have IP16 to fall back on.
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