Guide Protection and enhancement of allowances

Various forms of LTA protection have been made available over the years to offer some transitional protection for individuals when the LTA was first introduced, and then when it was later reduced. The protections offered individuals who had built up pension funds in excess of the LTA a boost in their LTA and some protection from LTA charges.

Since 6 April 2024, if an individual has a transitional LTA protection in place then their existing LTA protection increases their LSA and LSDBA. The increase is based on their own circumstances and the type of protection they hold. 

The LTA protections  retain their existing names and the existing conditions for each LTA protection will broadly remain – there are some changes to the conditions for Enhanced Protection and Fixed Protection (covered below).

When the LTA was introduced on 6 April 2006, individuals who had pension benefits that exceeded £1.5 million on the previous day could register their own personal LTA. Individuals in these circumstances were given a primary protection enhancement factor which was used to calculate their personal LTA.

Following the abolition of the LTA, those with primary protection will have:

• an LSA of £375,000
• an LSDBA of £1.8m multiplied by their enhancement factor (this includes their primary protection factor plus any other enhancement factor that applied to them).

Individuals who, on 5 April 2006, were entitled to lump sum rights of more than £375,000 could protect that right if they held primary protection. From 6 April 2024, that protection continues in a slightly amended form, but the effect of the protection remains the same. Two amendments to the legislation were made to ensure this.

Firstly, the LSA for such individuals is still £375,000. They don’t need to have LSA remaining to take their registered PCLS, but they must have available LSDBA.

Secondly, the legislation was amended to introduce a new definition of ‘permitted maximum’. PCLS is limited by the formula (A-B) where:

A = the value of the uncrystallised lump sum rights on 5 April 2006 increased by a factor of 1.2 (£1.8m/£1.5m), and

B = the revalued amount* of any PCLS paid in the period 6 April 2006 to 5 April 2012, plus the amount of any PCLS paid between 6 April 2012 and 5 April 2024.

* The revaluation is done by multiplying the PCLS amount paid at each BCE by £1.8m/ LTA at the point the PCLS was paid.

Example

Mark has primary protection with registered PCLS of £425,000 on 5 April 2006. He took a PCLS of £100,000 on 1 November 2007, and a further PCLS of £150,000 on 1 September 2023. This is how his permitted maximum is calculated:

A = £425,000 x 1.2 = £510,000.

B = (£100,000 x £1.8m/£1.6m) + £150,000

B= £112,500 + £150,000 = £262,500

Therefore Mark’s permitted maximum is £510,000 - £262,500 = £247,500.

Enhanced Protection (EP) was introduced to protect individuals whose benefits did, or were likely to exceed the LTA. Anyone could have applied for enhanced protection, irrespective of the value of their pension savings on 6 April 2006. Individuals who applied for enhanced protection had to stop paying into any money purchase scheme prior to 6 April 2006, and members of defined benefit schemes could only build up limited benefits after 6 April 2006. If an individual held EP, or made a valid late application, before 15 March 2023, the restriction on paying contributions or accruing benefits was removed from 6 April 2023 (along with the other restrictions around setting up new arrangements and only being able to transfer benefits if it was a permitted transfer); EP is not lost if contributions are paid, or benefits are accrued on or after 6 April 2023.  The restrictions will still apply if a late application for EP was made on or after 15 March 2023.

From 6 April 2024, those with enhanced protection, but no separate registered PCLS, have:

• an LSA of £375,000
• LSDBA will be the value of their uncrystallised rights on 5 April 2024:

Individuals who, on 5 April 2006, were entitled to lump sum rights of more than £375,000 could protect that right if they held EP. The permitted maximum for a PCLS for someone with registered PCLS and EP is the lower of:

• The maximum percentage of PCLS allowed on 5 April 2006 (as specified on the EP certificate) applied to the total value of benefits being used to provide PCLS and income on or after 6 April 2024), and
• their remaining LSA which for the purpose of the permitted maximum calculation is amended to the maximum that could have been paid from the arrangement on 5 April 2023 less any PCLS payments made since 5 April 2023.

Here’s an example:

Maxine has EP and her certificate shows the PCLS percentage as 28%. She is looking to take benefits from her uncrystallised funds of £200,000 on 1 August 2025. The value of the arrangement on 5 April 2023 was £185,000. She’s had no payments of PCLS since that date.

Her permitted maximum is the lower of:

• 28% of £200,000 = £56,000, and
• 28% of £185,000 = £51,800

So the maximum PCLS that can be paid is £51,800.

An individual with EP and registered PCLS, doesn’t need to have LSA remaining to take their registered PCLS, but they must have available LSDBA.

The LTA was reduced on three occasions after 6 April 2006, and each time it reduced, a version of fixed protection (FP) was introduced for individuals who had pension values which exceeded, or were likely to exceed, the new, lower LTA. Prior to 5 April 2023, FP gave individuals some protection from the LTA charge and could give a higher PCLS entitlement.  While there is no longer an LTA charge, FP can still be used to secure a higher LSA and LSDBA. Any benefits paid that exceed the allowances, will be taxed at their marginal rate of income tax (the same position applies for individual protection – see next section).

• FP2012 was set at £1.8m
• FP2014 was set at £1.5m
• FP2016 was set at £1.25m

However, prior to 6 April 2023, the following actions would cause the loss of FP:

• making pension contributions to a money purchase scheme or accruing benefits under a defined benefits scheme,
• starting a new arrangement other than to accept a permitted transfer from an existing arrangement ,
• where any transfer is made that is not a permitted transfer – you can find out more about this in our guide to Fixed Protection 2016.

These restrictions ceased to apply from 6 April 2023 for those who had registered for FP before 15 March 2023. However, the restrictions continue to apply to those who applied for FP2016 on or after 15 March 2023 (remember – to be able to apply for FP2016, benefit accrual had to cease by 6 April 2016). Applications for FP2016 to HMRC closed on 5 April 2025.

From 6 April 2024, individuals with fixed protection will have the following LSA and LSDBA:

*If the individual is also entitled to an enhancement factor, this will further increase their LSDBA.

Two different individual protections (IP) were introduced to provide protection against the reductions in LTA in 2014 and 2016.

IP2014 gave a personal LTA of between £1.25m and £1.5m. Individuals applying for IP2014 must have had at least £1.25m of total pension benefits as at 5 April 2014 and could not already have primary protection.

IP2016 gave a personal LTA of between £1m and £1.25m. Individuals applying for IP2016 must have had at least £1m in total pension benefits on 5 April 2016. The deadline for applications for IP2016 was 5 April 2025.

Individuals holding IP2014 or IP2016 will have their LSA and LSDBA adjusted to reflect their protected amount as follows:

*If the individual is also entitled to an enhancement factor, this will further increase their LSDBA.

The ‘relevant amount’ in each scenario above is the total value of the rights on whatever date applies, either 5 April 2014 for IP2014 or 5 April 2016 for IP2016, and  could have been higher than the maximum allowed for protection.

If the relevant amount was higher, then the individual’s ‘protected amount’ was capped accordingly. If the relevant amount was not more than £375,000/£1,500,000 for IP2014 or £312,500/£1.25m for IP2016, then the relevant amount and protected amount are the same.

Where an individual has an entitlement to one of more enhancement factors, they will have an enhanced LSDBA. Enhancement factors don’t increase an individual's LSA.

The enhancement factors are:

• a primary protection enhancement factor
• a pre-commencement pension credit factor
• an overseas transfer enhancement factor
• a pension credit factor
• a non-residence factor

The LSDBA is enhanced using the following formula:

A + (A x B)

Where A is the individual’s LSDBA (which will be £1,073,100 unless any of the above protections apply) and B is the total of all enhancement factors for the individual.

Except for Primary Protection, the entitlement to enhancement factors must have arisen before 6 April 2024 and the deadline for applying to HMRC is 5 April 2025. 

Note that each LSDBA figure below could be enhanced by one or more of the enhancement factors covered in the above section. Also – the last section of this page covers where the LSA and LSDBA treatment differs for individuals with protections and enhancements.