Protection is designed to shelter pension funds and benefits accumulated before A-Day, in part or in full, from the effects of the lifetime allowance charge.

If your client’s aggregate pension funds and benefits at A-Day were £1.5 million or more, or if you believe that by investment growth they could exceed the lifetime allowance when they take benefits, you may wish to consider registering them for transitional protection with HMRC before 6 April 2009.

Two main forms of protection are available. In certain circumstances your client may be able to register for both. In this case, they would also have the option in the future, where appropriate, to give up enhanced protection, resume contributions and or benefit accrual and retain primary protection.

Primary protection
Primary protection is only available to individuals where aggregate funds and benefits were in excess of £1.5 million at 5 April 2006. Primary protection is used to reduce the chance of paying, or reduce the amount of, the lifetime allowance charge when taking pension benefits in the future.

The level of protection available will depend on the value of your client’s fund at 5 April 2006 compared with the lifetime allowance of £1.5 million in 2006/7. For example, if your client’s fund is worth £3 million at 5 April 2006, their protection would be 200% of the standard lifetime allowance. If they then take benefits in 2010/11 when the standard lifetime allowance is £1.8 million and their fund is worth, say, £4 million, £3.6 million (£1.8 million x 200%) would be protected from the lifetime allowance charge. The £400,000 excess would be subject to a lifetime allowance charge.

Enhanced protection
Enhanced protection is available to anyone, irrespective of the size of their aggregate funds. It offers complete protection from a lifetime allowance charge. However, unlike primary protection, to remain entitled to enhanced protection your client must cease active membership of all registered pension schemes after 5 April 2006.

They will therefore no longer be able to make contributions to any registered pension scheme but their funds will be sheltered in their entirety from the lifetime allowance charge when benefits are taken regardless of the growth achieved due to investment performance.