Our Blog page banner

Pensions: lifetime allowance protection


Pensions: lifetime allowance protection


On 6 April 2016 the lifetime allowance (LTA) on pensions was reduced from £1.25 million to £1 million.

Individuals whose pensions are worth more than £1 million will face either a 55% tax charge on lump sum withdrawals above the tax-free amount, or a 25% charge on cash withdrawals and pension payments.

Ex-Chancellor George Osborne claimed during his Budget 2015 statement that less than 4% of pension savers will be affected by the reduction. Scottish Widows however claimed that the move will significantly increase the number of people caught by the LTA.

The good news is that there are ways to limit the effects of the LTA reduction.

The government introduced 2 new protection schemes to assist people who exceed the new LTA: fixed protection 2016 and individual protection 2016.

Fixed protection 2016

Fixed protection 2016 (FP2016) will fix your LTA at £1.25 million, meaning that the new allowance will not apply to your pension.

The downside is that you will lose the protection if you keep contributing to your pension past 5 April 2016. Successful applicants to fixed protection will have both opted out of workplace pension schemes and not made personal contributions past this date.

Holding individual protection 2014 (IP2014) will not prevent you from applying for FP2016. However, if you hold any of the following protections you will not qualify:


  • enhanced protection

  • primary protection

  • fixed protection

  • fixed protection 2014 (FP2014).

Individual protection 2016

Individual protection 2016 (IP2016) will fix your LTA to whichever of the following is lower: £1.25 million or your pension’s value on 5 April 2016.

Unlike FP2016, you will not lose individual protection should you or your employer continue to make contributions. However, you will face exit tax charges on any amount that exceeds your LTA.

Applicants to IP2016 must have had a pension valued at over £1 million on 5 April 2016.

Although having primary protection or IP2014 will prevent you from applying, holding any of the following will not disqualify you from IP2016:


  • enhanced protection

  • fixed protection

  • FP2014

  • FP2016.

Note that you can still apply for IP2014. Speak to one of our advisers for further information.

Contact us

Your decision on how best to protect your pension against tax charges will depend on its value and the length of time you have until you retire.

Remember always to seek professional advice before making any decisions that could significantly affect your financial future.

Contact us on 01628 631 056 or email geoffk@knightandcompany.co.uk for more information on pension tax planning.