Can someone explain the 'Protect your pension lifetime allowance'?

haveabreak

Hello

I don't really understand this protection of the lifetime allowance.

I am currently 44, don't work and have a pension balance of about £350k. I contribute £3600 each year as I have no earnings. I expect the pensions to increase based on investment returns. If I go back to work in the future perhaps the balance might increase to near the (old) lifetime allowance.

Do I need to protect it?  I understand there is a Individual protection 2016 and and Fixed protection 2016. I don't get what either of these do, and I don't know if it would apply to me?

Any help appreciated. 

hugheskevi

haveabreak said:

Hello

I don't really understand this protection of the lifetime allowance.

I am currently 44, don't work and have a pension balance of about £350k. I contribute £3600 each year as I have no earnings. I expect the pensions to increase based on investment returns. If I go back to work in the future perhaps the balance might increase to near the (old) lifetime allowance.

Do I need to protect it?  I understand there is a Individual protection 2016 and and Fixed protection 2016. I don't get what either of these do, and I don't know if it would apply to me?

Any help appreciated. 

You can forget about it, it is not relevant to you. 

It is intended for people with £1m+ in their pension. It enables them to take a higher tax free lump sum than £268,275.

Individual protection enabled those with £1m+ as at 5th April 2016 to preserve the amount of their pension (or £1.25m if lower) as their protected Lifetime Allowance and continue contributing to a pension.

Fixed protection enabled anyone to preserve a Lifetime Allowance of £1.25m but not be able to make any pension contributions beyond 5th April 2016.

Lifetime Allowance has been abolished, but the higher entitlements then enable a higher tax free lump sum.

gm0

The rules now are about the LSA (Lump Sum Allowance) and related topics for various complexities.

Effectively this is now just a constraint on the maximum tax free cash that may be taken.  268,275 or 25% of 1073,100 

It is still complicated as "already protected LTAs" were carried forward into it.  And there are other complications with overseas pensions, divorce and pension transfers, death benefits etc. etc.

https://techzone.abrdn.com/anon/public/pensions/Tech-guide-tax-free-cash
https://techzone.abrdn.com/anon/public/pensions/LSDBA-tech-guide

At the point of pension access. If you have less than £1m DC - this is fairly irrelevant. 
Your maximum tax free cash (absent weird scheme specific terms) is 25% of your pot.
And as you don't reach the LSA limit.  Done.  You have some unusued limit remaining - should you fund (within the rules) another pension that could be available.

If you have more than the LSA in your fund - then the maximum applies and you get 268.275 if you chose to take it as tax free cash.

The 2016 protections are only relevant if - in 2016 - you had >1m.

The IP and FP 2016 versions are still available until next year.  And for those that were affected by the LTA reduction changes (at the time).  This protects an LSA value which is higher - so tax free cash is 25% of 1.25m

But only if your pension was already larger than the limits - in 2016.  The rules to apply for these protections are restrictive.

The window for people in that situation to catch up with the moving target and apply - closes in 2025

https://techzone.abrdn.com/public/pensions/register-fixed-individual-2016

Griffa68

Hi, really helpful post and replies. With all the scenarios swirling about what might happen at the next budget with repect to pension reform possibilities, if fixed protection is already in place and active, can it ever be revoked or cancelled? My understanding was that the whole point of it was that once granted, it provided a guarantee, and could never be "undone". Clearly, if there is a risk that fixed protection could be revoked for people already using it at the next budget, then there'll be a rush to cash out or  move all available funds from pension into drawdown as quickly as possible?

artyboy

Griffa68 said:

Hi, really helpful post and replies. With all the scenarios swirling about what might happen at the next budget with repect to pension reform possibilities, if fixed protection is already in place and active, can it ever be revoked or cancelled? My understanding was that the whole point of it was that once granted, it provided a guarantee, and could never be "undone". Clearly, if there is a risk that fixed protection could be revoked for people already using it at the next budget, then there'll be a rush to cash out or  move all available funds from pension into drawdown as quickly as possible?

The government of the day can enact whatever laws they see fit to get through parliament. 

So yes. But this is just all more pointless speculation, which we DO NOT NEED here.