Losing IP16
There is only one reason for Individual Protection being reduced or lost and that is where the member becomes subject to a pension debit as a result of a pension sharing order following divorce, as this will reduce the value of their ‘relevant amount’.
The pension debit amount may be reduced based on the number of full tax years which have passed between the effective date of individual protection and the transfer day. The relevant amount is reduced by the adjusted pension debit amount and if the relevant amount falls below £1m (£1.25m for IP14) then the member loses individual protection and reverts back to the standard LTA for any future BCE. If a member has already relied on their individual protection to take benefits in excess of the standard LTA, ie before their individual protection amount is reduced, these remain protected.
Fixed Protection 2016
You don’t need existing pension fund values to apply for FP16. As long as you don’t hold Primary, Enhanced or earlier Fixed Protections (2012 and 2014) and you stopped contributions and/ or benefit accrual by 5 April 2016, you are eligible to apply for a fixed LTA limit of £1.25m.
Call to action
With the pension lifetime allowance being reduced over time, more and more people could potentially be liable for LTA excess charges. This makes considering LTA protections a vital part of pensions planning.
If you haven’t sorted out all your clients who are eligible for IP16 yet, then with 6th April 2020 fast approaching, it’s time to add requesting pension values for IP16 applications to your tax year end ‘to do’ list.
Leaving to later might not work out!
Scheme members can apply for IP16 via their HM Revenue and Customs (HMRC) Online Services account. Full details are available at: https://www.gov.uk/guidance/pension-schemes-protect-your-lifetime-allowance.
*Reference: Regulation 14C The Registered Pension Schemes (Provision of Information) Regulations 2006 – SI 2006/567
Page: 1 2
