Protection Flashcards
Primary Protection
► In order to qualify, benefits had to be in excess of £1.5m as at 6 April 2006 (A-day)
► Benefit was given in the form of an ‘enhanced Lifetime Allowance’
according to the size of A-day benefits,
Example: Benefits of £3m would be 200% of the standard LTA and the individual would have been given an enhancement of 100%.
When they draw benefits, they would not be subject to a charge until their BCE’s totalled 200%.
► Contributions could still be made, for example to top up poor investment performance
► As the lifetime allowance has fallen, those with primary protection maintain a ‘high water mark’ or underpinned allowance of £1.8m x their enhancement factor (£1.8m being the highest point the standard annual allowance reached).
So, in the previous example, assuming no benefits had yet been drawn, the member would not be subject to a charge until they had drawn £1.8m x 200%
= £3.6m.
► This means that there is no need for anyone with Primary Protection to apply for any form of later protection against the drop from £1.8m to £1.5m to £1.25m to £1m.
► In the event that someone with primary protection subsequently loses part of their pension in a divorce, the primary protection factor is recalculated. The value of the divorce pension debit is deducted from the value of the fund at A-day to recalculate.
So, to return to our example of a fund at £3m, we had an LTA enhancement factor of 100%.
If this person subsequently loses £1m of their pension in a divorce, this £1m is removed from the A-day value, to give a revised value of £2m.
This is 1.33 x the A-day LTA of £1.5m and the revised enhancement factor is 33.33%. Had the revised value been below £1.5m, Primary Protection would be lost.
Graduated pension - state pension
1961 - 1975
Serps - state earnings related pension scheme
1978 - 2002
State second pension
2002 - 2016
Contracted out of…
Serps & second state
Graduated & basic could not contract out of
GMP guarenteed min payment
Replaces what you’ve missed out on by opting out of serps / state 2nd pension
Protected right
Doesn’t mean anything just it just a personal pension plan - so it’s just telling you where the money came
From
