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Ready? The deadline for Individual Protection 2016 applications approaches

Author Image Les Cameron Head of Technical
3 minutes read
Last updated on 24th Dec 2019

There is no closing date for IP16 applications I hear you say, and I’d agree with you, except I feel it’s important to mention that the statutory obligation on scheme administrators to provide values at 5 April 2016 applies for only four years, so if you need pension values from your scheme, be sure to request these before 6 April 2020.

The law* states that a member can ask a scheme administrator for help in calculating their relevant amount, to enable the member to make an application for Individual Protection 2016. The scheme administrator must provide the information if:

  • The individual was a member of the scheme on 5 April 2016
  • The individual makes their request in writing
  • The scheme administrator receives the request before 6 April 2020, and
  • The information requested is necessary for calculating the value of the member’s relevant amount for the purposes of Individual Protection 2016

If all the conditions apply, the scheme administrator must give the information to the member within three months of receiving the member’s written request for information.

When you consider an individual may have been in a defined benefit scheme on 5 April 2016, but has subsequently transferred to a defined contribution scheme, it makes sense that the DB scheme can be left on the hook only for providing retrospective values for a limited period.

IP16 rules

A member with pension savings over £1 million on 5 April 2016 – providing they do not already hold primary protection or IP14 – is eligible to apply. They can protect the lower of (1) the value of existing pension savings at 5 April 2016 and (2) £1.25 million.

The personalised LTA is fixed, it is not uprated with CPI, which only increases the standard LTA limit.

Contributions and benefit accrual can continue, but any benefits in excess of the personalised LTA at a benefit crystallisation event will be subject to LTA charges in the normal way.

IP16 values

All based on the scheme(s) the member was in on 5 April 2016, and there are potentially four values needed:

  1. Pensions already in payment before 6 April 2006
  2. Pensions which used LTA between 6 April 2006 and 5 April 2016
  3. Pensions not yet taken
  4. Contributions (which gained UK tax relief) put into overseas pensions between 6 April 2006 and 5 April 2016

The total of all amounts is the ‘relevant amount’. Where this is greater than £1.25 million, the protection is capped at £1.25 million. Where the relevant amount is between £1 million and £1.25 million, it becomes the personalised protection amount. Where it is less than £1 million, IP16 is not available.

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 that 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 £1 million (£1.25 million 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 £1.25 million.

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 pension planning.

If you haven’t sorted out all your clients who are eligible for IP16 yet, then with 6 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!

*Reference: Regulation 14C The Registered Pension Schemes (Provision of Information) Regulations 2006 – SI 2006/567.

Next steps