Protecting pre A-Day rights
Existing members will be able to protect their pre A Day funds from the recovery charge and their pre A-Day rights to a tax-free lump sum in excess of the new limit. Where an individual has pension rights valued in excess of £1.5 million at A-Day, they can register that value within 3 years after A-Day - for the purposes of what is known as primary or as an alternative enhanced protection.
Registered values will be expressed as a percentage of the statutory lifetime allowance. For example, for a member who has a fund of £2.25m at A-Day the percentage will be 150%. By expressing the A-Day value in percentage terms, this will be automatically indexed in parallel with the indexation of the lifetime allowance.
When the pension vests the individual can take benefits, in this example up to 150% of the value of the statutory lifetime allowance in that year, without incurring the recovery charge. This is called Primary Protection and it will also protect any tax-free lump sum entitlement over £350,000 (i.e. 25% of the £1.5m limit). After A-Day, the protected member can take the amount of the pre A-Day lump sum rights increased to the extent as the increase in the lifetime allowance.
An alternative approach for the protection of pre A-Day pension funds will be available called Enhanced Protection. This approach will be available for those people who, before A-Day, suspend pensionable service and stop contributing to their pension funds. Under this approach, post A-Day increases in the value of pension funds and benefit rights accrued before A-Day will be protected from the recovery charge. Individuals with enhanced protection can revoke this at any time up to age 75 in favour of primary protection. For those who resume active scheme membership, protection from the recovery charge will be determined by their A-Day pension value.
At A-Day, those in occupational schemes, who have not registered for transitional protection, will be entitled to a tax-free lump sum of over 25 % of the value of their pension benefit. At vesting they will be able to take the tax-free lump sum to which they were entitled at A-Day, increased by the increase in the lifetime allowance to the date of vesting.