Lifetime Allowance Protections.
What you need to know before you contribute to the ii SIPP.
Please note: the Lifetime Allowance for Pensions (LTA) was abolished at the end of the 2023/24 tax year. Find out more.
If you have applied to the HMRC for a form of Lifetime Allowance protection, before you make any form of contribution to your SIPP, you should consider whether your protection will be invalidated by a contribution.
The following web page details our understanding of the rules that currently apply when making a contribution to a SIPP with Lifetime Allowance protection, as well as detailing how Lifetime Allowance protection affects the new Lump Sum Allowance (LSA) & Lump Sum and Death Benefit Allowance (LSDBA).
We recommend you speak with a financial adviser before making any decision to make a contribution if any of these protections apply to you. If you don’t already have an FCA regulated financial adviser, you can find one in your area at: https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/find-a-retirement-adviser
Fixed Protection applied for before 15 March 2023
Since 6 April 2023 contributing to a pension will not cause the loss of Fixed Protection if the fixed protection was applied for before 15 March 2023 and a Certificate or Reference Number was subsequently issued. This means that entitlements to pension commencement lump sums that exceed £268,275 will not be lost.
Fixed Protection applied for on or after 15 March 2023
Since 6 April 2023 contributing to a pension will cause the loss of Fixed Protection if the fixed protection was applied for on or after 15 March 2023 and a Certificate or Reference Number was subsequently issued. This means that entitlements to pension commencement lump sums that exceed £268,275 would be lost.
Enhanced Protection with Lump Sum Protection
Since 6 April 2023 contributing to a pension will not cause the loss of Enhanced Protection with Lump Sum Protection if the protection was applied for before 15 March 2023 and a Certificate or Reference Number subsequently issued. This means that entitlements to pension commencement lump sums that exceed £268,275 will not be lost.
Lump Sum Protection – Entitlement Change
Lump Sum Protection gives an entitlement to a Pension Commencement Lump Sum Percentage rate that exceeds 25%, for example a 40% rate of entitlement. When calculating the actual Pension Commencement Lump Sum amount using the enhanced percentage rate the value of the pension used must be the lesser of the pension value on 5 April 2023 and the value of the pension on the date the Pension Commencement Lump Sum is taken.
Enhanced Protection without Lump Sum Protection
Since 6 April 2023 contributing to a pension will not cause the loss of Enhanced Protection without Lump Sum Protection if the protection was applied for before 15 March 2023 and a Certificate or Reference Number subsequently issued. This means that entitlements to pension commencement lump sums that exceed £268,275 will not be lost.
What effect do existing protections have on the new Lump Sum Allowance (LSA) & Lump Sum and Death Benefit Allowance (LSDBA)?
The table below is only intended to provide a high-level summary of how existing protections apply to the Lump Sum Allowance and Lump Sum and Death Benefit Allowance introduced on 6 April 2024.
Protection Type | Lump Sum Allowance | Lump Sum and Death Benefit Allowance |
|---|---|---|
Enhanced Protection (without lump sum protection) | Increased to £375,000 | Replaced by the value of your uncrystallised rights on April 5 2024. |
Enhanced Protection (with lump sum protection) | Replaced by the amount of PCLS that could have been paid on 5 April 2023. | Replaced by the value of your uncrystallised rights on 5 April 2024. |
Primary Protection (without lump sum protection) | Increased to £375,000 | £1.8m increased by your primary protection enhancement factor. |
Primary Protection (with lump sum protection) | For the purposes of protected lump sums, the maximum lump sum is the lower of available LSDBA and the value that could have been paid as a stand-alone lump sum on 5 April 2023. | |
Fixed Protection 2012 | Increased to £450,000 | Increased to £1.8m |
Fixed Protection 2014 | Increased to £375,000 | Increased to £1.5m |
Fixed Protection 2016 | Increased to £312,500 | Increased £1.25m |
Individual Protection 2014 | Replaced by 25% of your protected Lifetime Allowance. | Replaced by your protected lifetime allowance. |
Individual Protection 2016 | Replaced by 25% the lower of £312,500 or 25% of your protected LTA. | Replaced by your protected lifetime allowance. |
Enhancement Factors (Pension Credits, Non-residence and Overseas Transfers) | Unchanged unless you have an enhancement factor from a pension credit acquired before 6 April 2006 and no primary protection. If this is the case, the LSA is replaced by the lower of £375,000 or £268,275 uplifted by your enhancement factor. | Unless primary protection applies, your LSDBA is uplifted by your enhancement factor. The standard LSDBA of £1,073,100 is used unless you have a higher allowance from lifetime allowance protection (excluding primary protection). |
Scheme specific protected lump sum | We are waiting for updates from the Government and HMRC on how the maximum lump sum payable will be calculated where a member is entitled to a scheme specific protected lump sum. | |
Protected Early Retirement Age | If you have a protected pension age and use it to take benefits before you reach 50, your available allowances will be reduced by 2.5% for every full year between the date you take benefits and the date you would reach Normal Minimum Pension Age (currently 55 but increasing to 57 from 2028). |
How can Pension Wise help?
If you have a defined contribution pension scheme and are 50 or over, then you can access free, impartial guidance on your pension options by booking a face to face or telephone appointment with Pension Wise, a service from MoneyHelper.
If you are under 50, you can still access free, impartial help and information about your pensions from MoneyHelper.
Important information: A SIPP is for those wanting to make their own investment decisions when saving for retirement. As investment values can go down as well as up, the amount you retire with could be worth less than you invested. Usually, you won’t be able to withdraw your money until age 55 (57 from 2028). Before transferring your pension, check if you’ll be charged any exit fees and make sure you don't lose any valuable benefits such as, guaranteed annuity rates, lower protected pension age or matching employer contributions. If you’re unsure about opening a SIPP or transferring your pension(s), please speak to an authorised financial adviser.