PTM176470 - Lump sum and lump sum and death benefit allowance: Fixed protection: Making contributions to an arrangement
If you are looking for information about FP prior to 6 April 2024, please see the National Archives.
Due to the similarities in the principles of these 3 types of protection this guidance covers them all unless otherwise specified and the 3 types of fixed protection are referred to collectively on this page as ‘the fixed protections’.
Individual’s that applied and received a valid fixed protection prior to the 15 March 2023 can accrue benefits and join new arrangements without losing their protection.
For individual’s that applied and received a fixed protection after the 15 March 2023 they can lose their fixed protection, the below guidance only refers to these individuals.
Making contributions to an arrangement
When a contribution is paid
Failure to stop an automatic payment from a bank and building society
Payment of a pension credit under a pension sharing order into a money purchase arrangement
Payment of a pension credit under a pension sharing order to a defined benefits/cash balance pension scheme
National Insurance rebates paid into a money purchase arrangement (other than cash balance)
Making contributions to an arrangement
Paragraph 14(4)(a), (5)(a) and (c) and 14(11) Schedule 18 Finance Act 2011
Paragraph 1(3)(a), 1(4)(a) and (4)(c) and 1(10) Schedule 22 Finance Act 2013
Paragraphs 3(a), 4(1)(a) and (c) and 4(4) Schedule 4 Finance Act 2016
If a member makes a relevant contribution to an other money purchase arrangement then they will lose their protection.
A member may be able to make further contributions to a defined benefits arrangement or cash balance arrangement. But the way that benefits are calculated for these types of arrangement may mean that there is benefit accrual if the member’s benefits increase by more than the relevant percentage. If that is the case then they will lose their protection.
When a contribution is paid
The rules for determining the day on which a contribution is paid depend on how the contribution is made. For example, if the contribution is made by cheque then it is paid when the cheque is received by the scheme administrator, as long as the cheque does not bounce. (See PTM041000 for more information about the normal rules for when a contribution is paid)
Failure to stop an automatic payment from a bank and building society
If the member has told their bank or building society in good time that they want to stop the payment but the bank or building society have failed to act on this then the member will not lose their fixed protection.
Here, the payment(s) made by the bank or building society were beyond their control and the member never intended that the payment(s) should be contributions. HMRC will not consider such payments as contributions and so fixed protection will not be lost.
The payments should be returned to the member although they will have to repay any tax relief they have received in relation to them.
Payment of a pension credit under a pension sharing order into a money purchase arrangement
Provided the pension credit is transferred to the member’s existing money purchase arrangement that is not a cash balance arrangement, the member will not lose their fixed protection. The tax rules provide that a pension credit in such cases is not a tax relievable contribution so its payment will not cause loss of the fixed protection.
However, if the pension credit is received from a non-registered pension scheme it is tax relievable. Fixed protection will be lost if it is paid into a registered pension scheme.
Likewise, if the pension credit is transferred into a new arrangement for the member, fixed protection will be lost. This is because setting up of the new arrangement will trigger loss of fixed protection.
Payment of a pension credit under a pension sharing order to a defined benefits/cash balance pension scheme
If the pension credit is transferred into a new arrangement for a member, fixed protection will be lost due to the setting up of the new arrangement.
If the pension credit is transferred into an existing defined benefits or cash balance arrangement then fixed protection will be lost if at the end of the tax year in which the pension credit is transferred into the arrangement benefit accrual occurs. It is very likely that there will be benefit accrual in such cases.
National Insurance rebates paid into a money purchase arrangement (other than cash balance)
For the purposes of benefit accrual, a National Insurance rebate is not a ‘relevant contribution’ so payment of this into a member’s arrangement will not cause loss of fixed protection.