You could register for enhanced protection (as well as primary protection) if the value of your pension benefits at 5 April 2006 was more than the 2006/2007 lifetime allowance (LTA) of £1.5million.
You could also register for enhanced protection if you believed the value of those benefits might in the future be more than the standard LTA or if you believed your pension benefits in any one year would increase by more than the annual allowance (AA).
Under enhanced protection you will not pay tax on benefits in excess of the LTA provided your benefits at retirement do not exceed the value of your benefits at 5 April 2006 as increased after then, in general terms, by the greater of:
- 5% per annum, or
- the increase in the cost of living, or
- increases in your pensionable pay
If the limit is exceeded you will pay tax on the excess.
You will lose enhanced protection if you pay contributions into a money purchase pension arrangement (e.g. pay into the LGPS arranged AVC facility* or if you start a new pension arrangement, or if you transfer your LGPS benefits to another defined benefit pension scheme. You can also voluntarily give up enhanced protection by giving notice that you no longer wish to keep it.
If you lose enhanced protection you must notify HM Revenue and Customs (HMRC) within 90 days. Failure to do so could result in a fine of up to £3,000.
To have enhanced protection you must have registered for it with HMRC by 5 April 2009.
The exemption from the annual allowance for the relatively small number of scheme members who applied to HMRC for, and received, an enhanced protection certificate ceased on 6 April 2011.
*You will not lose enhanced protection if you are paying AVCs at 5 April 2006 purely for extra life cover and carry on doing so after that date provided the terms are not varied significantly from those that applied under the policy at 5 April 2006 so as to increase the level of life cover or extend the period during which such benefits are payable e.g. you do not adjust the premiums to purchase increased life cover.