If the fund value is reduced below £1,250,000 they will lose their protection entirely. For this purpose, the value of the pension debit is reduced by 5 per cent for each tax year that has elapsed since the 2013/14 tax year.

Fixed Protection 2016

Two years on from 2014 and we had a further reduction in the LTA, meaning two new forms of protection.

“Fixed protection 2016” (FP 2016) works the same way as previous versions, albeit the protected LTA is £1,250,000 and the maximum tax-free lump sum is limited to 25 per cent of that.

However, there are a couple of differences. Firstly, the application is made online meaning no paper certificate is provided. HMRC instead gives members a protection reference number that they can give to their scheme administrator. Secondly, no deadline for applications has been announced.

That second point is more significant than it first seems, as there could be situations where the member has applied for FP 2016 having taken benefits from their pension after 5 April 2016 but before the submission of their FP 2016 application.

In that situation, it is worth noting that FP 2016 takes effect from 6 April 2016 regardless of when the application was made, which means previous benefits calculations may have to be revisited. 

In terms of revoking FP 2016, the same conditions apply as for FP 2012 and FP 2014. A member can hold FP 2016 alongside any form of individual protection but not alongside any other protections.

Individual Protection 2016

The other form of protection introduced in 2016 was “individual protection 2016” (IP 2016). 

This is very similar to IP 2014, and a member can apply if they had a fund value as at 5th April 2016 of £1,000,000 or more. The valuation methodology is the same as for IP 2014. 

In terms of benefits, IP 2016 gives the member a protected LTA based on their pension fund value as at 5 April 2016, capped at £1,250,000. The maximum PCLS is 25 per cent of the protected LTA.

As with FP 2016, the application is made online, and no deadline has been announced. Again, this can be revoked if a pension sharing order reduces the value of the pension rights below £1,000,000.

A member can hold IP 2016 alongside FP 2016 but no other form of protection.

Martin Jones is technical team leader at AJ Bell

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• Calculate the lifetime allowance usage under each form of protection
• Calculate the maximum tax-free lump sum amounts