Primary protection for pensions and your protected allowance

Primary protection for pensions was open to people with over £1.5 million saved on 5 April 2006. It now raises both tax-free lump sum allowances.

If you hold an HMRC certificate for primary protection, the figure on it still matters, though not in the way it once did. An FCA-authorised adviser can put that certificate beside your other pensions in one free call, set in motion by this page's short form. First, what the protection is and what it does now.

What is primary pension protection?

HMRC's Pensions Tax Manual says a claim could only be made where an individual's "pension and/or lump sum rights in a tax-privileged scheme or contract were valued at more than £1,500,000 at 5 April 2006". Notification had to reach HMRC "on or before 5 April 2009 but not before 6 April 2006", and HMRC then issued a certificate. The manual adds that HMRC "may accept a late notification in limited circumstances", so a closed window is not quite the last word.

People with primary protection were not frozen in place. They could carry on making tax-relieved contributions and building benefits after April 2006. That sets it apart from enhanced protection and fixed protection, which have their own conditions, and from individual protection, which came later.

Does primary protection still matter now the lifetime allowance has gone?

Yes, for tax-free lump sums. GOV.UK dates the abolition of the lifetime allowance to 6 April 2024; the history is in the lifetime allowance explained. HMRC's manual says that from that date a person with a valid protection is entitled to have their lump sum allowance and their lump sum and death benefit allowance protected.

Protections lift those allowances above the standard figures of £268,275 and £1,073,100. For primary protection, the manual gives:

• a lump sum allowance of £375,000 as of 6 April 2024, where you have no separate lump sum protection;
• a lump sum and death benefit allowance of £1,800,000 as of 6 April 2024.

Those are the starting figures where you had no benefit crystallisation events before 6 April 2024, and each relevant lump sum paid since then is deducted. If you did take benefits before that date, HMRC's transitional rules take an amount off first; for primary protection without lump sum protection, the amount taken off the £1,800,000 cannot exceed £375,000. For a serious ill-health lump sum, a stand-alone lump sum, or a charity or trivial commutation lump sum death benefit, the manual raises the lump sum and death benefit allowance by your primary protection factor: £1,800,000 + (£1,800,000 × factor), so a factor of 0.4 in HMRC's example gives £2,520,000. The standard allowances are explained at the lump sum and death benefit allowance and the wider picture at tax-free lump sums.

Primary protection calculator: how the protected amount is worked out

HMRC's manual works the figure out as a sum. Where your lump sum rights on 5 April 2006 were above £375,000, it starts from those rights, not today's pot. For a pension commencement lump sum or a stand-alone lump sum, the permitted maximum begins with your relevant uncrystallised lump sum rights on that date multiplied by 1.2, which is £1,800,000 divided by £1,500,000. Lump sums you were already entitled to are then taken off; for a pension commencement lump sum, any taken before 6 April 2012 is scaled up first.

HMRC's own example makes this concrete. Its member has protected lump sum rights of £600,000, worked as "£600,000 x 1.2 = £720,000", and takes a stand-alone lump sum of £400,000, which leaves £320,000 of the permitted maximum. That illustrates the method and is not a forecast for any reader.

Where protected lump sum rights were above £375,000, HMRC says the certificate shows the protected lump sum as a money amount; for someone with primary protection and no separate lump sum protection, the manual fixes the lump sum allowance at £375,000. Your certificate is the place to check which applies. How your 2006 rights were valued, or how payments already taken count against the allowance, suit an FCA-authorised adviser, reached by the enquiry form here.

How do you show a scheme that you have primary protection?

When you take benefits, tell the scheme administrator the reference number on the certificate HMRC issued when you notified. The administrator may ask for a copy of the certificate to confirm the value of your protected rights. If you would rather HMRC passed the details on, the manual says you must authorise it by completing form APSS203. Keep the certificate with your retirement papers.

What can reduce or end primary protection?

HMRC says primary protection "cannot be given up, but it can be reduced or lost entirely as a result of a pension sharing order". If you became subject to a pension debit after 5 April 2006, the manual recalculates your factor. In HMRC's example, protected rights of £3,000,000 reduced by a £300,000 debit give "£2,700,000 - £1,500,000 / £1,500,000 = 0.8", and that 0.8 factor applies to the allowances at the next relevant benefit crystallisation event. If a debit takes the protected rights below £1.5 million, protection is lost.

You must tell HMRC about the debit, and where protection survives HMRC issues a new certificate showing the reduced factor. The divorce side of pensions is in what happens to your pension if you divorce.

Two other effects of having primary protection

On death benefits, HMRC states that no income tax is due on a lump sum death benefit that is a relevant benefit crystallisation event if it does not exceed the deceased member's primary protection, and that a recipient can sometimes notify HMRC to raise the value. See how pension death benefits work for the wider rules.

Paying in is affected too. Under HMRC's manual, a stand-alone lump sum counts as a trigger for the money purchase annual allowance when the member has primary protection with protected lump sum rights above £375,000. That does not apply to a stand-alone lump sum paid under a defined benefits arrangement. The wider test is in the money purchase annual allowance.

Primary protection questions

Is it too late to claim primary protection?

The notification window ran from 6 April 2006 to 5 April 2009. HMRC says it may accept a late notification in limited circumstances, so ask HMRC or your scheme before assuming it is closed.

Does primary protection mean my whole pension is tax free?

No. It raises the allowances for tax-free lump sums and does nothing for the rest of your retirement income; how that is taxed is covered at drawdown tax.

Does primary protection stop me making new pension contributions?

HMRC says people with primary protection could and can continue to make tax-relieved contributions. Yearly limits are a separate matter, covered in the pension annual allowance.

Is my primary protection the same as individual protection?

No. HMRC says individual protection 2014 was for savings above £1.25 million on 5 April 2014 and individual protection 2016 for savings above £1 million on 5 April 2016, whereas primary protection is tied to over £1.5 million on 5 April 2006.

Where do I find my protected figure?

It is on the HMRC certificate you were issued. If you have lost it, HMRC can give your protection details to your scheme once you authorise it on form APSS203. Once the enquiry form here is sent, an FCA-authorised adviser can line your certificate figure up against your own lump sums free of charge.