Applying for Her Majesty’s Revenue & Customs (HMRC) Pension Protections 2016
25.09.2018 , BY Steve Caps
25.09.2018 , BY Steve Caps
Now that superannuation certificates for the tax year ending 5th April 2016 should have been processed by the NHS Pensions Agency (NHSPA), GPs should consider starting the process of applying for Fixed Protection 2016 (FP2016) and Individual Protection 2016 (IP2016). Although there is no deadline for applying for either FP2016 or IP2016, it would be prudent to apply for and receive these protections, especially for GPs planning on taking their NHS pension in the not too distant future.
As a quick recap, the total amount of tax free benefits that individuals can accumulate within their pension arrangements was reduced from £1.25m to £1m on 6th April 2016. This limit is known as the Lifetime Allowance (LTA). The LTA has now reduced on three occasions, from £1.8m to £1.5m on 6th April 2012, from £1.5m to £1.25 on 6th April 2014 and from £1.25m to £1m on 6th April 2016.
This limit is scheduled to be increased by the rise in the Consumer Price Index (CPI) each year from April 2018 and did increase to £1.03m on 6th of April 2018.
Where pension benefits exceed the LTA, any excess pension benefits will be subject to an LTA tax charge (LTAC) at the point at which these excess benefits are taken.
The LTAC is 55% where the excess benefits are taken as a lump sum or 25% where the excess benefits are taken as an income, although the income will then be subject to income tax at the recipient’s marginal rate of tax.
If the excess arises from within the NHS Pension Scheme (NHSPS) then, in most cases, NHSPS will apply the 25% tax charge to the member’s pension and pay this sum to HMRC on the member’s behalf.
As a result of the various reductions to the LTA outlined above, more and more individuals will find themselves in a position where their benefits will exceed the reduced LTAs.
As such, in order to provide some fairness and protection to those individuals whose benefits exceeded the reduced figures, before the changes were announced, HMRC introduced various transitional protection regimes which enable individuals with pension benefits exceeding the LTA, to apply for a certain level of protection.
The deadlines for earlier protection regimes have now closed, but there is no deadline for FP2016 or IP2016.
GPs can apply for FP2016, which will give them an individual LTA of £1.25m, however, in order to be able to retain FP2016, members will need to ensure that their benefits do not exceed the relevant amount, Benefit Accrual (BA) set by HMRC. This BA amount is equivalent of the rise in the CPI in the previous September.
Given the way that GPs’ pension benefits are calculated, it is extremely unlikely that any GP that has continued accruing pension benefits within the NHSPS after 5th April 2016 will meet these requirements. GPs that have opted out of the NHSPS before 5th April 2016 (and have not made any private pension contributions since then) will be able to apply for FP2016 thereby retaining an LTA of £1.25m.
GPs that are continuing to contribute to the NHSPS will be able to apply for IP2016 if their pension benefits as at 5th April 2016 exceed £1m. IP2016 will provide GPs will personal LTA of between £1m and £1.25m and will also enable GPs to continue accruing benefits up until retirement.
For example, a GP whose pension benefits as at 5th April 2016 amount to £1.2m will have a personal LTA of £1.2m. Alternatively, a GP who has pension benefits of £1.3m as at 5th April 2016, will have a personal LTA of £1.25m.
These higher limits will remain in place until such time as the standard LTA (if CPI linking continues) exceeds the IP2016 limit.
In order to apply for IP2016, individuals will need to get an IP2016 valuation from the NHSPA which will cost £120 and the relevant forms can be downloaded from the NHS website www.nhsbsa.nhs.uk/Pensions/4222.aspx.
GPs will need to apply online for HMRC FP2016 and IP2016 and details of how to apply can be found at
As mentioned above, FP2016 will only apply to individuals who do not have “benefit accrual” after 5th April 2016.
There is no deadline for applying for FP2016 or IP2016, however, individuals will need to provide their FP2016 or IP2016 number at the time of taking their NHS Pension benefits or else a tax charge will applied to any benefits in excess of the then standard LTA. This will only then be reversed once the appropriate certificate has been provided. As such, it would be advisable to apply in good time before pension benefits are being taken.