You may find this page helpful if you’re due an uplift to your PPF compensation and you retired after your pension scheme entered PPF assessment.
Pension Lifetime Allowance
The lifetime allowance (LTA) is the limit on how much you can build up in pension benefits over your lifetime while still receiving full tax benefits. When the LTA was introduced in 2006, it was set at £1,500,000. By 2010 it had risen to £1,800,000. After that, it was reduced: to £1,500,000 (in 2012), to £1,250,000 (in 2014), and finally to £1,000,000 (in 2016). Since 2016, the LTA has risen in line with inflation to £1,073,100 and has remained at that level since 2020.
In the Spring Budget 2023, the Chancellor announced major changes to remove the LTA and the LTA tax charge. However, these changes are not expected to apply to most members receiving an uplift. This is because your LTA will need to be rechecked based on your uplifted PPF benefits on your retirement date, when the LTA and the LTA tax charge were still in effect.
Now the compensation cap is being removed; some members may be liable to pay a lifetime allowance charge on their PPF benefits.
You won’t be affected if you retired from your original scheme before it entered PPF assessment when your employer suffered an insolvency event.
However, if you retired after your scheme entered PPF assessment, your LTA will need to be rechecked based on your uncapped PPF benefits on your retirement date. In the following FAQs, we’ll look at how you might be affected and what protections you may be able to apply for.
As we can’t offer financial advice, you may wish to discuss your options with an Independent Financial Adviser or HRMC.
Pension Lifetime Allowance FAQs
What happens if I go over my available Lifetime Allowance (LTA) because the cap has been removed?
We’ll check your uncapped compensation against your available LTA at the date you retired from the PPF. We’ll then work out the correct LTA to apply to your benefits, i.e. the standard level or any higher protected level you hold. If you exceed the LTA, we’ll provide you with the value of your uncapped compensation, and check whether you intend to make a late application for LTA protection. Once you have obtained retrospective LTA protection (or confirmed you do not intend to do this), we will confirm the amount over the LTA and the options available to you.
I didn’t apply for Lifetime Allowance (LTA) protection because my benefits were capped, and now I’m over LTA. What can I do?
You can still apply for Fixed Protection 2016 and Individual Protection 2016. Some members may be eligible for earlier forms of protection but would need to make a late application for HMRC to consider. We suggest you seek advice from an Independent Financial Adviser - our information sheet may help you and your adviser determine if you’re eligible.
I revoked my existing Lifetime Allowance (LTA) protection because my benefits were capped, and now I’m over LTA. What can I do?
You can still apply for Fixed Protection 2016 and Individual Protection 2016. Some members may be eligible for earlier forms of protection but would need to make a late application for HMRC to consider. We suggest you seek advice from an Independent Financial Adviser - our information sheet may help you and your adviser determine if you’re eligible.
I think I’ve lost my eligibility to apply for LTA Protection – is there anything I can do to recover my eligibility?
The different types of LTA protection can be invalidated for various reasons. For example, Fixed Protection will be invalidated if you’ve paid contributions to another pension arrangement since the effective date of that protection. If you’ve invalidated the LTA protection you’d like to apply for, you should contact HMRC to understand if you can unwind your actions to recover your eligibility for the LTA protection. We’re unable to give guidance on HMRC’s approach.
I think I may have been able to apply for a more beneficial type of Lifetime Allowance (LTA) protection, but I didn’t because my benefits were capped, and now I‘m over LTA. What can I do?
Some members may be eligible for earlier forms of protection that provide a higher protected LTA than the protection they already have but would need to make a late application for HMRC to consider. We suggest you seek advice from an Independent Financial Adviser - our information sheet may help you and your adviser determine if you’re eligible.
How do I know if I have Lifetime Allowance (LTA) protection?
HMRC would have provided you with a Certificate confirming your protection. If you don’t have this but believe you were granted protection, then you can check via your online HMRC account or contact HMRC and request your protection reference number.
I have taken pension benefits from other providers since my PPF retirement date; what happens to them?
Depending on your circumstances, you may now have an LTA charge on benefits taken after your PPF date of retirement. Once your benefits have been uncapped and you’ve received your revised LTA % from us, contact your other pension providers to understand how your pension from those providers will be affected. You may wish to seek advice from an Independent Financial Adviser to understand what the LTA charge could mean for you.
How much difference would obtaining retrospective Lifetime Allowance (LTA) protection make
Having a higher protected LTA could reduce or eliminate any LTA charge you’re liable for now that your benefits are uncapped. However, that only applies if the effective date of your protection is on or before your PPF retirement date.
If I obtain retrospective Lifetime Allowance (LTA) protection, could I receive more of a lump sum?
The maximum lump sum which is payable is equal to 25% of the capital value of your uncapping increase. However, if you obtain retrospective LTA protection, which takes effect on or before your PPF retirement date, then the part of your lump sum which can be paid on a tax-free basis may be increased.
Who pays the Lifetime Allowance (LTA) charge to HMRC and how much will it be?
If there are LTA charges, we’ll pay these to HMRC on your behalf.
If the LTA charge is on the lump sum, it will be 55%. We’ll deduct the LTA charge from your lump sum before we pay you.
If the LTA charge is on your ongoing compensation, it will be 25%. We’ll convert this to a monthly deduction and take it from your monthly payments for the rest of your lifetime.
Will the PPF reimburse me for Lifetime Allowance (LTA) tax charges because the cap has been removed?
We recognise that some capped members would have behaved differently if they had known their correct PPF entitlement all along. We’ve agreed we’ll reimburse members who are in this situation for part or all of the LTA tax charges applied to their PPF compensation. You may be eligible for reimbursement where:
- You did not apply for a form of LTA protection - however, had you known your correct uncapped PPF entitlement all along, you would have applied for LTA protection or a more valuable LTA protection).
- You had previously secured LTA protection but you caused your LTA protection to be revoked by HMRC - however, you would not have done this if you had known your correct uncapped PPF entitlement all along.
Before we reimburse any LTA tax charges, we’re asking members to apply to HMRC for the relevant LTA protections (either as a new protection or to have a revoked protection reinstated) in order to reduce their LTA tax charge. It’s important to simultaneously apply for all protections that are relevant to your circumstances and that could reduce the amount of any LTA tax charge that is or may become due.
If the uplift to your PPF compensation means you will exceed your available LTA, we will write to you to explain your options and how any reimbursement may be paid.
There may also be some capped members who, had they known their correct uncapped PPF entitlement all along, would have planned their retirement savings so that they did not exceed their LTA. These members may have contributed to other pension schemes to rebuild their pension savings up to the LTA - however would not have done so, or would have contributed a lower amount (up to the LTA), if they had known their correct uncapped PPF entitlement. If you believe you are entitled to reimbursement of tax charges incurred outside of the PPF in these situations, please contact the member services team on 0330 123 2222 or +44 (0)20 8633 4902 if you are calling from overseas to request an application form.
It is our intention to complete the uncapping exercise for every member before we start to process LTA reimbursements.
Do I need to get independent advice?
As we can’t offer financial advice, we’d recommend you get independent advice to help you understand your options. Your adviser will take your financial history and other pension arrangements into account.
If you don’t already have a financial adviser, the Money Helper site can help you choose one.