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Lifetime Allowance

The Lifetime Allowance is the total amount that you can build up from all your pension savings in your lifetime without incurring a tax charge. All pension benefits you build up, including those outside the NHS Pension Scheme (apart from the State Pension), will use up a percentage of your Lifetime Allowance.

The Lifetime Allowance is currently £1 million. This has changed over time. The table below shows the standard Lifetime Allowance amount:

Tax year Lifetime Allowance
2006/07 £1.5m
2007/08 £1.6m
2008/09 £1.65m
2009/10 £1.75m
2010/11 £1.8m
2011/12 £1.8m
2012/13 £1.5m
2013/14 £1.5m
2014/15 £1.25m
2015/16 £1.25m
2016/17 £1m
2017/18 £1m
2018/19 £1m + CPI

The value of your pension benefits that exceed the Lifetime Allowance are subject to a charge at the time benefits are taken (crystallise).

The Lifetime Allowance charge

The charge is a form of income tax for which both you and the Scheme administrator are jointly liable.

The rate of tax charged will depend on whether you take that excess as a pension or a lump sum.

The Lifetime Allowance charge is:

  • 55% if you are taking the excess as a lump sum
  • 25% where you take it as a taxable pension income.

NHS Pensions pays a Lifetime Allowance charge directly to HMRC and recovers the cost by permanently reducing your NHS pension benefits. This is because the calculation used for the recovery of the charge reflects the overall life expectancy in the NHS Pension Scheme.

A children’s pension is never reduced.

An adult dependant’s pension will not be reduced if the value of the pension is less than 50% of the value of the proportion of your pension that is deemed to be below the Lifetime Allowance. In all other cases an adult dependant’s pension may be reduced.

Look at our Lifetime Allowance charge examples that show how the Lifetime Allowance charge is deducted.

HMRC protections

There are a number of different HMRC protections available to members who could exceed the Lifetime Allowance.

Individual Protection 2014

Individual Protection 2014 allows you to crystallise benefits worth up to £1.5 million without paying a Lifetime Allowance charge. Any pension savings in excess of the protected amount will be subject to a charge when they crystallise.

A rise in standard Lifetime Allowance to more than £1.5 million would result in Individual Protection 2014 ceasing and your Lifetime Allowance will revert to the higher amount.

Requesting an Individual Protection 2014 valuation

You can request an Individual Protection 2014 valuation by completing one of the below forms. Which form you should complete will depend on whether you were a General Practitioner or not on 5 April 2014.

AW295 IP2014 (Officer)

AW295 IP2014 (GP)

A charge is payable for a valuation request. Details of the charge and how to pay are provided on the forms.

If you were a practitioner with a concurrent hospital post please complete the GP form and NHS Pensions will obtain any information required from your hospital employer.

Applying for Individual Protection 2014

You can apply to HMRC for Individual Protection 2014 as long as you do not have Primary Protection and the capital value of all your pension benefits is equal to, or over, £1.25 million as at 5 April 2014.

The deadline to apply to HMRC is 5 April 2017.

You will need to complete HMRC’s online application form.

To complete the application correctly, you must have the following details:

  • Confirmation that you do not have Primary Protection
  • The value of your pension savings
  • The date and amount of any Pension Debit to which pension savings have become subject since 6 April 2014 and before the application is made, and the amount of the discounted Pension Debit
  • Full name and address
  • Date of birth
  • National Insurance number.

Once HMRC has accepted and processed your online application, they will issue you with an Individual Protection 2014 certificate. This will have a unique reference number and confirm the individual amount protected. You will need to keep the certificate safe so that you can give this information to NHS Pensions if you want to rely on this protection when you come to take your pension.

Loss of Individual Protection 2014

Individual Protection 2014 allows you to build up further NHS pension benefits without the risk of losing this protection.

You cannot give up Individual Protection 2014 but it can be lost if you become subject to a Pension Sharing Order and the capital value of your pension benefits, taking into account the Pension Debit, falls below £1.25 million. If this happens, it is up to you to inform HMRC about this within 60 days of the notice of discharge being issued by NHS Pensions.

If appropriate, HMRC will either:

  • issue a replacement Individual Protection 2014 certificate which will indicate a lower amount of protection, or
  • revoke the certificate.

Any benefit crystallisation events that occurred after 5 April 2014 but before the effective date of the Pension Sharing Order will be unaffected by the replacement or revocation of the certificate.

Individual Protection 2016

As a consequence of reducing the standard Lifetime Allowance (LTA) to £1 million from 6 April 2016, the Government's solution is to offer new protections to members who could be impacted by the reduction.

If you hold Enhanced Protection or Fixed Protection, but the value of your pension benefits did not qualify you for Primary Protection or Individual Protection 2014, you need to consider whether you now have sufficient pension benefits to apply for Individual Protection 2016, which will remain dormant while the existing protection remains valid.

Requesting an Individual Protection 2016 valuation

If you are applying for Individual Protection 2016 you will need to know the value of your NHS pension benefits as at 5 April 2016 and will therefore need to apply for an Individual Protection 2016 valuation. You will also need to know the value of any other pension arrangements. You can request an Individual Protection 2016 valuation by completing one of the below forms. Which form you should complete will depend on whether you were a General Practitioner or not on 5 April 2016.

AW295 IP2016 (Officer)

AW295 IP2016 (GP)

A charge is payable for a valuation request. Details of the charge and how to pay are provided on the forms.

Type 1 and 2 Medical Practitioner and non-GP Provider members - NHS Pensions will routinely only provide IP2016 valuations when pensionable earnings and revaluation information up to 5 April 2016 have been confirmed. These will not be final until May 2018.

However, for those members who intend to retire before May 2018, we will provide a provisional IP2016 valuation based on information provided on form AW295 IP2016 (GP). You must then request a final IP2016 valuation after May 2018, again using form AW295 IP2016 (GP).

We expect the bulk of these requests will be processed after May 2018.

Dental Practitioner members - NHS Pensions will routinely only provide IP2016 valuations when dental pensionable earnings and revaluation information up to 5 April 2016 have been confirmed. These will not be final until May 2017.

However, for those members who intend to retire before May 2017, we will provide a provisional IP2016 valuation based on information provided on form AW295 IP2016 (GP). You must then request a final IP2016 valuation after May 2017, again using form AW295 IP2016 (GP).

We expect the bulk of these requests will be processed after May 2017.

Hospital, Practice and Approved Employer Staff members - if the member record is update to year end 31 March 2016 then we will need pay and hours (if part time) for the five day period from 1 April 2016 to 5 April 2016.

Employers will be required to provide pay and membership details up to 5 April 2016 when requested to do so on forms AW295 IP2016 (Officer)or Cash Equivalent Transfer Value (CETV) FA11a form. Without this information NHS Pensions will be unable to calculate an IP valuation.

Applying for Individual Protection 2016

You can apply to HMRC for Individual Protection 2016 as long as you do not have Primary Protection (active or dormant) and the capital value of your pension benefits, from all your registered pensions schemes including your NHS pension benefits, is equal to or over £1 million as at 5 April 2016.

HMRC has indicated that there will not be an application deadline for obtaining Individual Protection 2016.

Applications for Individual Protection 2016 can be made via an HMRC online self service tool. You will need the following:

  • an account for HMRC online services - you can set one up when you start your application
  • to know what your pension(s) were worth on 5 April 2016 and a breakdown of the amount.

For the 2016 protections HMRC will not be issuing a paper protection certificate. Instead they will provide a protection reference number and, for Individual Protection 2016, confirmation of the member's individual LTA electronically. You will need these when you come to retire. HMRC are also exploring ways in which administrators of pension schemes will be able to check the protection status of one of their members.

The information needed by HMRC to process the application will be similar to that of the previous declarations for Fixed Protection 2012, Fixed Protection 2014 and Individual Protection 2014. Fixed Protection 2016 will have precedence over Individual Protection if you are applying for both.

Loss of Individual Protection 2016

Individual Protection 2016 allows you to build up further benefits in the NHS Pension Scheme without the risk of losing this protection.

You will have an individual LTA equal to the capital value of your benefits at 5 April 2016 but subject to a maximum cap of £1.25 million. Pension benefits will be protected up to this amount and as a result you may be able to take a tax free lump sum  of up to 25% of your individual LTA. This will be lower if you already have pension benefits in payment.

A Lifetime Allowance charge would be due on benefits in excess of your individual Lifetime Allowance amount.

Individual Protection will remain dormant if you have one of the following:

  • Enhanced Protection
  • Fixed Protection 2012
  • Fixed Protection 2014
  • Fixed Protection 2016

 

Fixed Protection 2016

As a consequence of reducing the standard Lifetime Allowance (LTA) to £1 million from 6 April 2016, the Government's solution is to offer new protections to members who could be impacted by the reduction.

Once you have Fixed Protection 2016 (and it remains valid) your LTA is fixed at £1.25 million. Members with Fixed Protection 2016 may be able to take a tax free lump sum of up to £312,500. This will be lower if the member already has benefits in payment.

Importantly, if you have a 1995/2008 Scheme member with Tapered Protection, Fixed Protection will be lost when you move and contribute to the 2015 Scheme. The loss of Enhanced Protection and Fixed Protection because of the 2015 NHS Pension Scheme factsheet has more information.

Applying for Fixed Protection 2016

You can apply for Fixed Protection 2016, whether your benefits exceed £1 million or not, as long as you do not already have one of the following protections:

  • Enhanced Protection
  • Primary Protection
  • Fixed Protection 2012
  • Fixed Protection 2014

HMRC have indicated there will not be a deadline for Fixed Protection 2016.

Applications for Fixed Protection 2016 can be made via an HMRC online self service tool. You will need:

  • an account for HMRC online services - you can set one up when you start your application.

For the 2016 protections HMRC will not be issuing a paper protection certificate. Instead they will provide a protection reference number. You will need this when you come to retire. HMRC are also exploring ways in which administrators of pension schemes will be able to check the protection status of one of their members.

The information needed by HMRC to process the application will be similar to that of the previous declarations for Fixed Protection 2012, Fixed Protection 2014 and Individual Protection 2014. Fixed Protection 2016 will have precedence over Individual Protection if you are applying for both.

Loss of Fixed Protection 2016

For Fixed Protection 2016 to remain valid there can be no benefit accrual after 5 April 2016. Fixed Protection 2016 is lost on the day benefit accrual occurs. Benefit accrual includes:

  • any pension contributions paid to a defined contribution scheme, this includes the NHS Money Purchase AVC Scheme
  • pension growth in NHS pension benefits that exceed a relevant percentage.

To avoid the risk of losing Fixed Protection 2016 certain members, after consulting with a financial adviser, may wish to opt out of the NHS Pension Scheme before 6 April 2016.

One of the conditions for retaining Fixed Protection 2016 is that you do not trigger benefit accrual on or after 6 April 2016. This is where future accrual on or after 6 April 2016. This is where future accrual in either the 1995/ 2008 Scheme or the 2015 Scheme exceeds the value of benefits at 5 April 2016 indexed in line with inflation in the 12 months prior to September 2015. As this value was negative (-0.1% for the year to September 2015), if you are building up benefits from 6 April 2016 you will more than likely incur benefit accrual immediately.

An election to opt out of the NHS Pension Scheme takes effect from the first of the month following the month in which it is given. The deadline for opting out was March 2016 to ensure this would have an effective date of 1 April 2016. You must consider very carefully any decision to opt out and take into consideration the valuable pension and attaching risk benefits (e.g. death in service benefits) that the NHS Pension Scheme provides.

 

 

Joining or rejoining the pension scheme because or Auto enrolment and its effects on Enhanced or Fixed Protection.

There have been a number of protection arrangements where the deadline for applying has now passed.

If you think you may be affected by the LTA, it is recommended that you take independent financial advice from a registered individual who can assess and quantify the extent of any potential tax liability and also comment on the benefits of remaining in the NHS Pension Scheme.