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The LTA has now been in existence for 10 years, having been introduced back in April 2006. Whilst there is no limit on the value of pension savings that can be built, if it exceeds the LTA when the pension is taken the amount in excess of the LTA will be charged at 55 per cent if taken as a lump sum or 25 per cent if left in the fund.
The LTA has now reduced to £1m but you may have the opportunity to protect your pension fund at a higher allowance.
At various stages through this process, there has been the opportunity to protect against the falling LTA, these protections are detailed below:-
Enhanced Protection: Prior to 2006 if somebody applied for Enhanced Protection it meant that their fund would never be tested against the LTA however they had to immediately cease contributions
Primary Protection: Individuals who had more than £1.5m at 5 April 2006 were able to apply for Primary Protection which would protect their fund at whatever level it was as at 2006 and still allow them to contribute, which was beneficial if the fund fell in value.
Fixed Protection 2012: Once the LTA had hit its high of £1.8m it then dropped back to £1.5m in 2012. Individuals were able to protect against this and protect their LTA at £1.8m providing they didn’t contribute again.
Fixed Protection 2014: This allowed individuals to protect against the Lifetime Allowance falling from £1.5m to £1.25m and allowed them to fix their LTA at £1.5m providing they didn’t contribute again.
As of the 28th July 2016, you can now apply for Individual Protection 2014, Individual Protection 2016 and Fixed Protection 2016 online at https://www.gov.uk/guidance/pension-schemes-protect-your-lifetime-allowance
Please also remember that the lifetime allowance is set to increase by CPI with effect from April 2018.