Primary, Enhanced and Fixed Protection
The Lifetime Allowance was introduced in April 2006. It was first set at £1.5 million. If your pension fund was larger, you had to pay additional tax charges.
Back then it quickly became clear that plan holders with funds that were already large – close to or over the limit – would have to pay a charge, which might have been considered unfair. To help these plan holders, two transitional provisions were introduced – Primary and Enhanced Protection.
Under these provisions, the value of people’s funds on 6 April 2006 became their personal lifetime allowance. In some circumstances, it was allowed to grow in line with officially approved revaluation factors. New contributions after 5 March 2006 were usually disallowed.
In addition, in some cases – where the pension commencement lump sum was more than a quarter of the fund value – this too was protected.
After 2006, the Lifetime Allowance first rose to £1.8m and then reduced to £1.5m. Fixed Protection was initially available for people who were affected by this reduction as their pension funds exceeded the new limit.
The Lifetime Allowance fell to £1.25m on 6 April 2014, and again anyone who does not already hold protection, but is already above the new £1.25m limit, or expects to be so before they retire can apply for protection for their pension fund.