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Pensions

Fixed Protection 2016 and Individual Protection 2016

From the 6 April 2016 the Lifetime Allowance reduced down from £1.25m to £1m and two forms of protection were introduced to protect individuals’ lifetime allowance from the reduction.


The two type of protection available are Fixed Protection 2016 and Individual Protection 2016 and both have been available from 6 April 2016.

The features of both forms of protection are set out in the table below:

Fixed Protection 2016 Individual Protection 2016

Individuals must not:

  • Have made any contributions (either individual or by their employer) or had any relevant benefit accrual since 5 April 2016

  • Have either Primary or Enhanced Protection, Fixed Protection 2012 or Fixed or Individual Protection 2014.

Individuals must:

  • Have benefits of more than £1million as at 5 April 2016

  • Not have either Primary Protection or Individual Protection 2014.
Fixed Protection 2016 Individual Protection 2016

Protects benefits up to £1.25 million.

Protects total benefits up to an individuals protected lifetime allowance, between £1 million and £1.25 million.

Fixed Protection 2016 Individual Protection 2016

No – any relevant contributions or further benefit accrual must cease from 5 April 2016

Yes – individuals can continue to build benefits without the loss of IP16.

Although IP16 only covers benefits up to the individuals protected amount.

Fixed Protection 2016 Individual Protection 2016

No – benefits do not need to be valued for FP16 – although only benefits up to £1.25 million will be protected.

Yes – benefits will need to be valued as at 5 April 2016 and will include;

  • Any benefits that came into payment pre 6 April 2006; and

  • Post 5 April 2006 benefits (both uncrystallised and crystallised)
Fixed Protection 2016 Individual Protection 2016

Yes – can be lost if:

  • New arrangement started (other than to accept transfer of existing pension rights)

  • Making further contributions or benefit accrual

  • Certain transfers (i.e. which are impermissible or not permitted)

Where protection is lost, the member will be required to notify HMRC within 90 days of first reasonably being expected to know that their protection no longer applies.

Where a member fails to do this, there are penalties of up to £300 for failure to notify and daily penalties of up to £60 per day after the initial penalty is raised.

Yes – if a pension debit (post 5 April 2016) reduces the individual’s benefits to under £1million.

The member needs to notify HMRC within 60 days of the date of the discharge notice related to the pension debit or they may face fines.

Where benefits, as a result of the pension debit, are reduced but are still over £1 million, then a replacement reference number will be issued in respect of the new lower amount.

Fixed Protection 2016 Individual Protection 2016

Yes – providing pension benefits are at least £1 million as at 5 April 2016 and no contributions are made or any benefit accrual from 6 April 2016.

Individual Protection 2016 will sit in the background but if any of the criteria that results in Fixed Protection 2016 being lost occurs then only Individual Protection 2016 will apply.

Fixed Protection 2016 Individual Protection 2016

There is no deadline to apply for either FP16 or IP16, although the above criteria will still need to apply.

These can be applied for online from on or after 6 April 2016.

This briefing note has been prepared for professional advisers use only.

Please note that we are providing this information and comment based on our current understanding of tax law, HMRC practice and legislation which may change and it should not be considered a definitive statement in law. We are also providing this on the strict basis that they are for your consideration only and that ultimate responsibility for any advice given to your client lies with yourself. Canada Life and Canada Life International Limited cannot be held responsible for the results of any action or inaction the client may undertake.

This briefing note is also available as a PDF

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Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

Canada Life International Limited and CLI Institutional Limited are Isle of Man registered companies authorised and regulated by the Isle of Man Financial Services Authority.

Canada Life International Assurance (Ireland) DAC is authorised and regulated by the Central Bank of Ireland.