A look at FP and IP 2016, in terms of what each protection offers, the criteria for applying and implications.
- The lifetime allowance is £1,055,000 (2019/20) and increases annually in line with the Consumer Price Index (CPI).
- Two forms of protection have been available since 6 April 2016. Both can still be applied for providing the eligibility criteria can be met.
- Fixed Protection 2016 (or FP16) – protects benefits up to £1.25m.
- Individual Protection 2016 (or IP16) protects benefits up to an individual’s protected lifetime allowance (dependent on the value as at 5 April 2016) between £1m and £1.25m.
What are the features of both FPI6 and IPI6?
Fixed protection 2016 individual protection 2016 eligibility
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 Protection 2014
- Have benefits of more than £1m as at 5 April 2016
- Not have either Primary Protection or Individual Protection 2014
How much is protected?
Protects benefits up to £1.25m. Protects total benefits up to an individuals protected lifetime allowance, (as valued at 5 April 2016) between £1m and £1.25m.
Can contributions continue?
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 individual’s protected amount.
Do pension benefits need valuing?
No – benefits do not need to be valued for FP16 – although only benefits up to £1.25m 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)
Can protection be lost?
Yes – can be lost if:
- A new arrangement has been started (other than to accept transfer of existing pension rights)
- Making further contributions or benefit accrual
- Certain transfers (for example, 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 £1m.
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 £1m, then a replacement reference number will be issued in respect of the new lower amount.
Can both protections apply?
Yes – providing pension benefits are at least £1m as at 5 April 2016 and no contributions are made or any benefit accrual from 6 April 2016.
Although both protections will apply, if any of the criteria that results in Fixed Protection 2016 being lost then only Individual Protection 2016 will apply.
What is the application process?
There is no deadline to apply for either FP16 or IP16, although the above criteria will still apply.
These can be applied for online.
This document is based on Canada Life’s understanding of applicable UK tax legislation and current HM Revenue & Custom’s practice, as at April 2019 and could be subject to change in the future. It is provided for professional advisers only. Any recommendations are the adviser’s sole responsibility.