If your pension value was more than £1,073,100 as at 5th April 2016, we recommend that you apply to HMRC for an Individual Protection 2016 (IP16) certificate, if you don’t already hold one. The deadline to apply is 5th April 2025.
Why is this important?
The Lifetime Allowance (LTA) was abolished in April 2024, but you may now find yourself subject to the Lump Sum Allowance (LSA) which has a cumulative limit of £268,275. If LTA protection is held it may change the LSA limit available to you.
Most people can usually take up to 25% of the amount built up in any pension as a tax-free lump sum. The LSA of £268,275 is 25% of the £1,073,100 LTA as at 5th April 2024. However, if individual protection is held at a higher rate than £1,073,100 then you may have access to a higher rate of tax-free cash than would be the case with the current LSA limit of £268,275.
It is still possible to protect under IP16 but only worth doing so if your pension value was greater than £1,073,100 as at 5th April 2016. This would give a LSA value of 25% of the protected value.
Who does it affect?
This affects anybody who exceeded a pension value of £1,073,100 as at 5th April 2016 and who is yet to crystallise a pension. Whilst it applies to all Armed Forces Pension Schemes, it is worth particular mention for senior officers on AFPS 05 who left the Armed Forces with an Early Departure Payment and an award statement indicating that they are nowhere close to exceeding their LTA. They may experience a significant increase in their pension value when they reach age 65 yet still have the ability to protect the pension at the value on 5th April 2016, allowing the potential for an increased tax-free lump sum above the current LSA limit. It may also affect other individuals, including those who had private and workplace pensions in addition to their Armed Forces pension. It is certainly worth considering.
How do I know if this applies to me?
You can write to Veterans UK and ask for the value of your Armed Forces pension as at 5th April 2016, for the purposes of LTA. The value is calculated by multiplying the annual pension by 20 and adding any automatic lump sum (please note that AFPS 15 doesn’t have an automatic lump sum). If the value exceeds £1,073,100 then you can apply for IP16. You should also add to it the value of any other pension you had at the time.
How to apply for an IP16 certificate?
You can find details of how to apply on the HMRC website.
