What is Enhanced Protection?
Enhanced Protection was introduced for people who, at 5 April 2006, expected their pension benefits to be over the newly introduced lifetime allowance (LTA) when they intended to take them and wanted to avoid an LTA excess charge.
Anyone could apply for Enhanced Protection, regardless of the value of their funds, until 5 April 2009. Assuming they kept their protection, and did not lose it, it had the effect of eliminating any lifetime allowance charge. Effectively a member could take an unlimited amount from their pension arrangements after April 2006.
All pension funding and accrual had to stop.
Lump sum rights at 5th April 2006 that were in excess of £375,000 were also protected under Enhanced Protection and was delivered as a percentage amount the individual could take.
The Spring Budget 2023 announced the abolition of the LTA from 6th April 2024.
Enhanced Protection continues into the new pension regime. It effects the amount and usage of an individuals Lump Sum Allowance and Lump Sum and Death Benefit Allowance. It is also impacts the tax treatment and availability of certain lump sums.
As part of the abolition of the LTA anyone who applied and held Enhanced Protection as at 15th March 2023 could no longer lose their protection with effect from 6th April 2023. Since then it has been possible to make contributions and accrue benefits without losing the protection.
It also means those with protection will suffer tax when benefits taken exceed the limits.
A detailed explanation of Enhanced Protection can be found in HMRCs Pension Tax Manual at PTM092410.