Fixed protection 16 (FP16)
• There is no minimum value required to qualify.
• It fixes the lifetime allowance at £1.25 million.*
• No further contributions into a money purchase scheme are allowed from 6 April 2016 or FP16 will be lost.
• No benefit accrual in any defined benefit pension scheme.#
Individual Protection 16 (IP16)
• A minimum value of £1 million is required to qualify.
• It gives the individual a lifetime allowance that is equal to the capital value of their pension savings on 5 April 2016, but no higher than £1.25m.*
• Further contributions are allowed.
How do I apply for Fixed Protection 2016 or Individual Protection 2016?
Unlike previous versions of protection, scheme members can’t apply in advance, there are no paper applications and no certificates will be issued. An online digital service will be available in July 2016 for applications to be made.
Upon making an online application a member will receive a permanent reference number which they must provide to pension scheme administrators before a benefit crystallisation event.
Members who took benefits between 6 April 2016 and July 2016 were able to apply for interim protection. HMRC issued a temporary reference number to provide to their pension scheme administrator. The temporary reference number will only be valid until 31 August 2016.
It is important to note that scheme members who take benefits and rely on this interim process to temporarily protect their pension savings must make a full online application to ensure their pension savings continue to be protected from the lifetime allowance tax charge. Scheme administrators will not be able to use the temporary reference number in any reporting to HMRC and must wait until a permanent reference number is provided by the scheme member.
Therefore it appears that if a permanent number is not supplied to the scheme administrator in time for their reporting requirements they will be forced to report this as having no protection. The impact of this could be the member using more of their lifetime allowance than planned, or even suffering a tax charge for exceeding the standard lifetime allowance.
How does the online process work?
It is the member and not the adviser who will need to apply for either Fixed or Individual Protection 2016.
The member will need to create a gateway account and, from there, answer questions dependent on which type of protection they are applying for.
HMRC has provided guidance and links to the online application service which is located here - https://www.gov.uk/guidance/pension-schemes-protect-your-lifetime-allowance
* Whenever the standard lifetime allowance is lower.
# For members of a defined benefit scheme there is scope for benefits to increase in limited circumstances if within the legislation and scheme rules. This is generally applicable for deferred benefits. This is defined in more detail in PTM093500 and PTM093600.