PTM176560 - Lump sum allowance and lump sum and death benefit allowance: Individual protection: Pension debits

If you are looking for information about IP prior to 6 April 2024, please see the National Archives. 

Due to the similarities in the principles of these two types of protection this guidance covers them both unless otherwise specified and the two types of individual protection are referred to collectively on this page as “the individual protections”.

Losing individual protection
Pension debit
Requirements to tell HMRC if pension rights are reduced as a result of a pension debit


Losing individual protection

Paragraph 1(6) to (9) Schedule 6 Finance Act 2014
Paragraph 9(6) to (8) Schedule 4 Finance Act 2016

There is only one situation where an individual’s protection can be reduced or lost altogether. This is if, after 5 April 2014, for IP 2014, or 5 April 2016, for IP 2016, they become subject to a pension debit as a result of a pension sharing order following their divorce, as this will reduce the value of their relevant amount.

Pension debit

Section 46(1) Welfare Reform and Pensions Act 1999 and Article 43(1) Welfare Reform and Pensions (Northern Ireland) Order 1999

An individual’s pension rights may be reduced as a result of the rights becoming subject to a pension debit. This happens when an individual divorces and their pension rights become the subject of a pension sharing order. A pension debit is the amount by which the value of the individual’s pension rights are reduced, with a corresponding pension credit in the same amount being given to their ex-spouse or former civil partner. The reduction due to the pension debit applies from the effective date of the pension sharing order and not, where this is later, the date on which their pension rights are actually split by their pension scheme(s).

Pension debit resulting in a reductions of individual protection

Paragraph 1(6) Schedule 6 Finance Act 2014
Paragraph 9(6) Schedule 4 Finance ACT 2016
Section 29 Welfare Reform and Pensions Act 1999 and Article 26 Welfare Reform and Pensions (Northern Ireland) Order 1999

The amount protected will be reduced if the pension debit’s transfer day happens on or after 6 April 2014 for IP14 or 6 April 2016 for IP16. The “transfer day” is the day set out in section 29 Welfare Reform and Pensions Act 1999 or Article 26 Welfare Reform and Pensions (Northern Ireland) Order 1999.

Effect of a pension debit on individual protection 

Paragraph 1(6)-(9) Schedule 6 Finance Act 2014
Paragraph 9(6)-(8) Schedule 4 Finance Act 2016

If a member becomes subject to a pension debit their individual protection will be reduced by the amount of the pension debit.

However, if the transfer day occurs on or after 6 April 2015 (for IP14)/6 April 2017 (for IP16) the amount of the pension debit is reduced by 5 per cent for each full tax year that has elapsed since tax year 2014-24/tax year 2015-16. The member’s relevant amount is then reduced by that reduced pension debit.

Where the pension debit reduction results in a member’s relevant amount being less than £1,250,000/£1,073,100 they will lose their individual protection.

Requirements to tell HMRC if pension rights are reduced as a result of a pension debit

Regulation 9 of the Registered Pension Schemes and Relieved Non-UK Pension Schemes (Enhanced Allowances Transitional Protection) (Individual Protection 2014 Notification Regulations 2014 - SI 2014/1842
Paragraph 18 Schedule 4 Finance Act 2016

IP14

If, at any time after HMRC has issued an IP 14 certificate, a member’s pension rights become subject to a pension debit, the member must inform HMRC accordingly about this within 60 days of the date of the pension debit. The date of a pension debit is the date on which the notice of discharge of liability is issued under regulation 8(1) of the Pensions on Divorce etc. (Provision of Information) Regulations 2000 SI 2000/1048.

HMRC must be provided with the following information:

  • the date of the pension debit,
  • the amount of the pension debit,
  • the net amount of the pension debit taking into account any required reduction to this.

The legislation does not specify how the information should be provided to HMRC so it can be by post, phone or any online facility HMRC makes available for this purpose

HMRC will then either revoke the member’s IP14 certificate if their relevant amount is reduced to £1,250,000 or less, or issue a replacement certificate in relation to the reduced relevant amount if this is still in excess of £1,250,000.

If this information is not provided within 60 days the member may be liable to penalties.

IP16

An individual must notify HMRC if they receive a discharge notice related to a pension debit - i.e. a notice of discharge of liability in relation to a pension credit corresponding to the pension debit issued under regulation 8(2) or (3) of the Pensions on Divorce etc. (Provision of Information) Regulations 2000 (S.I. 2000/1048) - at a time when any of the following circumstances apply:

  • the individual has been issued with a reference number following a successful application for IP 2016,
  • the individual has a pending application for an IP 2016 reference number. A pending application is one where the individual has (a) made an application but does not yet know if it has been successful (i.e. they have not been issued with a reference number) or (b) has not been told their application has been successful on a dormant basis or (c) the application has been unsuccessful but an appeal is in progress against HMRC’s refusal to issue a reference number (an appeal, including a further appeal, is in progress for so long as it has not been either withdrawn or determined and there is no prospect of further appeal, or
  • an appeal is in progress against HMRC’s decision to withdraw the individual’s FP16 reference number.

Where any of the above circumstances apply, the individual must notify HMRC of both the “appropriate amount” of the pension debit and the “transfer day” as defined by section 29 Welfare Reform and Pensions Act 1999 or Article 26 of Welfare Reform and Pensions (Northern Ireland) Order 1999 (SI 1999/3147 (NI 11)).

The notice must be given to HMRC within 60 days of the date of the discharge notice related to the pension debit. Notice must be given either using the online facility provided by HMRC for this purpose or by any other means authorised by HMRC in a particular case.

HMRC will then either withdraw the member’s IP16 reference number if their relevant amount is reduced to £1,073,100 or less, or issue a replacement reference number in relation to the reduced relevant amount if this is still in excess of £1,073,100.

If this information is not provided within 60 days the member may be liable to penalties.