The Chancellor's decision to freeze the Lifetime Allowance at £1.8m, revealed in the Pre-Budget Report, means that many more people may wish to consider applying for either primary or enhanced protection.

Any individual who has accumulated benefits greater than the initial lifetime allowance of £1.5 million can apply for primary protection. This gives the individual a factor to augment the standard lifetime allowance based on the amount their benefits exceeded £1.5 million at 5 April 2006. It’s possible there still could be a lifetime allowance charge if the benefits increase at a greater rate than the lifetime allowance increases. Contributions can still be made, though this would increase the risk of a lifetime allowance charge at vesting.

The other option is enhanced protection. Anyone can apply for this regardless of the level of their benefits and as long as enhanced protection is maintained, the benefits will be free from any lifetime allowance charge. Any ‘relevant benefit accrual’ would invalidate enhanced protection. For money purchase schemes, relevant benefit accrual would be any contribution for pension benefits paid after 5 April 2006. For defined benefit schemes, relevant benefit accrual is deemed to have taken place if the benefits that pay out on retirement are greater than what is termed the ‘appropriate limit’. This limit is derived from the benefits at A-Day increased by certain factors.

You must apply for protection to HM Revenue & Customs no later than 5 April 2009.