Primary Protection of Tax Free Cash

Primary Protection of Tax Free Cash - Pension Simplification Laws

Primary Protection is available to people whose pension funds have exceeded the Lifetime Allowance.   

If your tax free cash entitlement already exceeded 25% of £1,500,000 (Lifetime Allowance 2006/2007) i.e.  £375,000, you can elect to register your own unique Primary Protection allowance level that you were entitled to at 5 April 2006.   

The value as at this date, your primary protection, will then be indexed (increased in line with) using the same factors as the normal lifetime allowance increases.   

E.g.  Normal Lifetime Allowance figure for 2006/2007 is £1,500,000 and Tax Free Cash limit is 25% i.e.  £375,000 and for 2007/2008 the Lifetime Allowance is £1,600,000 and the Tax Free Cash limit is 25% i.e.  £400,000.   

• Therefore, if you have already have a tax free cash entitlement  in excess of £375,000 e.g.  £750,000 at the start of the new regulations on 6 April 2006. 
• You can register your £750,000 as your Primary Protection.   
• Your initial Primary Protection is double the official Lifetime Allowance cash threshold.   

Therefore, for the tax year 2007/2008 your Primary Protection threshold will be double the official Lifetime Allowance cash amount for 2007/2008 (£400,000) i.e.  your Primary Protection has increased to £800,000.   

IMPORTANT 2009 DEADLINE

You have until 5 April 2009 to register your pension for Primary Protection if it complied with the requirements on 6 April 2006.

Growth on your ‘Primary Protection’ Fund and Tax Free Cash: 

Irrespective of any growth on your pension fund, the Tax Free Cash Primary Protection level and your entitlement to tax free cash will only increase in line with the Lifetime Allowance threshold increases. 

Fund growth has no impact.   

You can of course opt for Enhanced Protection on the pension fund and increase your tax free cash entitlement in line with any achieved pension fund growth.   

What happens if I transfer my pension to another pension scheme?

If you subsequently transfer pension benefits after 6 April 2006 you will retain your Primary Protection if the tax free sum is above 25%, if it is below you will lose your Primary Protection.