Enhanced Protection

From 6th April 2006 the lifetime allowance, the total amount of money you are allowed to have in all your pension pots, was introduced and capped. If your pot was in breach of this, or you thought it may do so, you could apply for Enhanced Protection. This gives full protection from the lifetime allowance charge when you come to take your benefits.

You could also have applied for Primary Protection and held both, although Enhanced takes precedence.

You needed to have applied and received this by the 6th April 2009. This protection can still be held and used however, it may impact upon your ability to hold the other forms of pension protection.

Enhanced Protection and Protection of Lump Sums

Normally, the total of all your tax free lump sums can’t be more than 25 per cent of the standard lifetime allowance.

If you had the right to take a tax free lump sum of more than £375,000 from your pension savings on 5th April 2006, you could apply to have this right protected along with your Enhanced Protection.

Your Enhanced Protection certificate will tell you what percentage of your pension savings you may be able to take as a lump sum if you have this protection.

Remember, this protection was no longer available after the 5thApril 2009

What are the rules?

You will only be able to keep Enhanced Protection if you do not break any of the following rules:

  • There are no more contributions made to any of your money purchase pension pots
  • There is no build up of new benefits in a defined benefits or cash balance pension pot above a maximum amount (See RBA rules below)
  • Joining a new pension scheme – unless you’re only transferring pension savings from one of your existing schemes into the new scheme
  • You start saving in a new pension pot either under an existing pension scheme or a new pension scheme

There are also restrictions on transferring your pension savings. For example, if you transfer savings from a money purchase pot and the pension pot receiving the transfer isn’t a money purchase scheme, you’ll lose your protection.

What are the Relevant Benefit Accrual (RBA) rules?

The NHS Pension is an accrual scheme, where benefits increase/accrue at a certain rate. Once you have Enhanced Protection the rules state that this accrual cannot break these rules/tests:

  • Test 1: The indexed amount – growth in the 5th April 2006 capital value by the greater of 5% per year or the Retail Prices Index
  • Test 2: The earnings recalculation amount – the value of membership on 5th April 2006 and pensionable pay at retirement

Enhanced Protection is lost where the total value of your pension benefits when you take them exceeds both of the above tests. If you lose Enhanced Protection you may still be able to rely on Primary Protection, if you have it, as long as the total value of all your pension benefits at 5th April 2006 was more than £1,500,000. If not, then the pension benefits will be subject to LTA charges as normal.

The test for Relevant Benefit Accrual will only be performed when benefits are due to be paid and will not be officially tested until this time.