You are here: Home - Retirement - Retiring now - How to -

Individual Protection: What is it and should you apply?

Written by:
As Individual Protection applications open, we demystify the latest question facing pension savers.

This year has seen several major changes in the pensions landscape.

Just one of these changes was a reduction in the standard Lifetime Allowance (LTA) for pension savers – or, put simply, the maximum amount a person can save towards their retirement without paying a high rate of tax. As of 6 April 2014, the LTA was reduced from £1.5m to £1.25m, leaving anyone who had saved to the previous threshold facing some serious tax implications.

To protect these savers, the government introduced various forms of “protection”, including Individual Protection. Applications opened 18 August, but do you need to apply?

Is Individual Protection relevant to me?

Individual protection is only relevant to you if you have at least the current LTA of £1.25m saved in your pension pots.

Bhargaw Buddhdev, head of executive pensions at Barnett Waddingham, says: “Individuals who had pension savings over £1.25m as at 5 April 2014 and do not have Primary Protection should apply.”

What is the purpose of individual protection?

Individual protection is there to shield you from being hit by an unfair tax bill. Anyone with pension savings between £1.25m and £1.5m saved what they believed to be an amount below their LTA, only to have the threshold lowered due to factors beyond their control. Individual Protection is intended to shield these savers from current and future decreases in the LTA allowance because, at the time they were saving, their pension pot was within the limit.

How does it work?

Individual Protection 2014 – as it is known by HMRC – applies retrospectively from 6 April 2014, the first day of the new tax year. The value of your pension pot on 5 April 2014 – if over £1.25m and up to the former threshold of £1.5m – is your new LTA.

You can still make contributions, but any amount over your individual threshold will be taxed when withdrawn at a rate of 55 per cent for a lump sum or a withholding tax of 25 per cent if the excess is taken as additional income.

What if I already have another form of protection?

Several types of protection exist, but you can still apply for Individual Protection 2014 if you have registered for Enhanced Protection, Fixed Protection 2012 or Fixed Protection 2014.

Buddhdev says: “For individuals with Enhanced Protection or either form of Fixed Protection, Individual Protection 2014 can offer a safety net where the earlier LTA protections could be inadvertently lost. Individuals should seek advice to avoid unnecessary tax bills.”

How do I apply?

You can apply online only. The deadline is 5 April 2017, so you do have time, but be aware that you will need an accurate valuation of your pension pots as of 5 April 2014. For more details visit HMRC’s website.

Tag Box

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

How to get 5% interest without tying up your savings for years

You don't have to lock your money away to get an above-average return on your savings.
How to get 5% interest without tying up your savings for years

John Lewis Partnership Card to close in October

John Lewis has confirmed the current Partnership Card will stop working at the end of October, with existing c...
John Lewis Partnership Card to close in October

Warning as more people could pay tax on savings for the first time

The successive base rate hikes could push more Brits into paying tax on their savings interest for the first t...
Warning as more people could pay tax on savings for the first time

Ryanair jetting towards US flights for £10

Ryanair is on course to achieve its long-held ambition of offering transatlantic flights to the US – and the...

Investing in car parks: a good vehicle for income seekers?

As the search for income continues, many investors are turning to alternatives, with car parks becoming increa...

A quick guide to guarantor loans – in association with Guarantor Loan Comparison

Considering a guarantor loan or becoming a guarantor yourself? Read our essential guide...

Results round-up: Companies to watch this week

Mulberry and more will face the music this week.

Product launches of the week

Select Property Group, Schroders, Leeds Building Society and more have exciting news this week.

Money Tips of the Week