Unlike with primary protection, there was no fund value requirement for enhanced protection, meaning people could apply for enhanced protection even if their benefits were worth less than £1,500,000.
However, there were still prescribed forms to complete, and the deadline for application was again 5 April 2009.
The key application condition for enhanced protection was that the member could not have had any relevant benefit accrual from 6 April 2006 onwards.
This means they could not have made a contribution to a defined contribution scheme and they could not have accrued benefits under a defined benefit scheme (above a certain limit).
This is an ongoing condition, which means it is still relevant today.
Clients with enhanced protection need to be careful around automatic enrolment contributions.
They also need to be aware that some compensation payments are viewed by HMRC as contributions if they are directed into a pension scheme.
Certain transfers can also mean enhanced protection is lost, as can the establishment of a new pension scheme outside of prescribed circumstances.
If enhanced protection is lost, the member will have to rely on the standard LTA for all future BCEs (unless they also applied for primary protection – see final section).
However, previous BCEs are not reassessed retrospectively.
They will also have to notify HMRC they have lost their protection within 90 days of losing it.
If they do not do this, they may face a fine.
Enhanced protection – lifetime allowance calculations
The main benefit of enhanced protection is that it fully protects the member’s pension rights from the LTA.
This means their pensions will never be subject to the LTA tax charge when they come to be crystallised, regardless of their value at the time.
This is the main difference between primary protection and enhanced protection.
Therefore, LTA usage for members with enhanced protection is calculated as normal.
There are no modifications to the calculation. LTA usage is reported to the member as a percentage of the standard LTA.
Enhanced protection – with no protected lump sum
For clients with enhanced protection, the tax-free lump sum (much like under primary protection) is normally limited to 25 per cent of £1,500,000.
Again, if the standard LTA in the future increases above £1,500,000, it will be limited to 25 per cent of the standard LTA.
For clients with pre-2006 lump sum rights of £375,000 or higher, it was possible for them to protect their lump sum entitlement under enhanced protection as well.
Unlike primary protection, however, the protected lump is expressed as a percentage of the total value of the pension benefits, rather than as a monetary amount.
The percentage is confirmed on the protection certificate.
