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HMRC has published guidance regarding how to safeguard pension protection, following the pension changes announced at Spring Budget 2023. Care should be taken as the rules differ depending on the date the LTA protection application was received by HMRC.
At Spring Budget 2023, Chancellor Jeremy Hunt announced that from 6 April 2023 the pension lifetime allowance (LTA) charge would not be applied and that the pensions annual allowance would increase from £40,000 to £60,000. The LTA was previously £1,073,100 unless an individual had LTA protections.
Most taxpayers can now choose to take 25% of their pension as a tax-free lump sum, subject to a cap of £268,275 (a quarter of the former LTA threshold). The value of a pension is no longer compared to the LTA threshold at the earlier of when an individual accesses their pension or reaches the age of 75.
New HMRC guidance confirms that individuals who hold valid LTA protection can access a tax-free lump sum of more than £268,275. The exact amount will depend on which protection they hold.
Those who made a successful enhanced protection or fixed protection application prior to 15 March 2023, can also re-commence contributing to their pension scheme from 6 April 2023 without losing their protection. They are also able to enrol into new workplace pension schemes and transfer money between pension schemes from 6 April 2023 without losing LTA protection. However, care should be taken if enrolling into a pension scheme in April 2023. The relaxation of the rules applies from 6 April 2023, whereas enrolment may apply from earlier in the month.
Where an individual successfully applied for enhanced protection or fixed protection and the application was received by HMRC on or after 15 March 2023, the existing conditions must continue to be met after 5 April 2023 to maintain that protection. This means that these individuals will not be able to make further pension savings from 6 April 2023 if they want to access a higher tax-free lump sum under LTA protections.
Further details of when LTA protection is lost can be found in HMRC’s guidance.
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