Do I pay ERNIC on my pension ?

Discussion in 'Armed Forces Pension Scheme' started by agoodgrouping, Dec 23, 2012.

Welcome to the Army Rumour Service, ARRSE

The UK's largest and busiest UNofficial military website.

The heart of the site is the forum area, including:

  1. Just trying to work out how much I will actually get in the bank each month when I retire next year - difficult because I am in the higher tax band and I suppose I will stay on that even though I retire mid-year and drop below the ceiling until I have a second income. Can anyone who is in receipt of a pension/retired pay confirm if they are paying NI and if they stayed on the Higher Band until the end of the Tax year ? I can't seem to get a straight answer
  2. Pensions are taxable, gratuities are not. When you leave, if you don't immediately gain employment, your income will be your pension on which you will pay the basic rate tax which is 20% (£0 - £34,370) on earnings over your personal allowance.

    When you leave you should visit the HMRC site (link below):

    HM Revenue & Customs: Income Tax
  3. You won't pay NI on your pension, just income tax. Your tax code will determine what income tax is deducted at source but in general you should expect your tax allowance to be applied to your pension before other income such as your main employment. If there are reasons for doing this differently then you can discuss it with HMRC. They notify Xafinity Paymaster (which actually pays the pension) what code to apply. They'll take account of your total expected earnings in a single financial year. So if you are now on higher rate but after leaving your income will fall substantially, they can take it into account and apply an appropriate code.

    Don't forget you'll have to settle up after the year end, when your actual income is clear.
  4. If your pension is the only source of income at the time of retirement, then your existing personal allowance will simply be applied against your pension, and there should be no/little further action at year's end.

    Once/if you gain employment, then you will need to make a decision on whether to set your allowance against pension or salary. In my case, as my salary put me in the 40% band anyway, I set it against my salary, instructing HRMC accordingly. My pension, therefore, has a D0 code set against it which results in a straight 40% taxation.

    No NI to be paid on pension.

    In simple terms a pension of 30K, with no other income, will give you around £2100 per month after tax.
  5. I didn't know how much detail you wanted but, for the record, CBO is spot on, and my position is the same as his. We'll both have two tax codes - D0 which is applied to the pension by Xafinity, and another one which is applied to salary by employer.
  6. How would it work with a salary that doesn't go straight into top band, but a combined pension and salary that does?

    Sent from my HTC Desire using Tapatalk 2
  7. You would need to speak to HRMC and work out the best options. I believe, however, that the personal allowance would be set against your main source of income, with the secondary income being allocated a code dependent upon what you and the HRMC estimate your total annual income to be.
  8. Devexwarrior - by default HMRC will apply your allowances to your pension unless you're in the same position as CBO and I. In that case they can apply all your allowances to your pension, your salary, or split them between the two if your pension will only partially use the allowances up. They'll do that on the basis of what you (or they) expect you to receive in total during the tax year.

    Your pension will generally remain the same throughout the year - there are exceptions, but leave them to one side for now. The pension you receive after tax (on the 20th of each month) will be determined by the tax code HMRC issues, and will also generally remain the same throughout the year. Your salary will be taxed separately, but the code applied to it will reflect any allowances left over after your pension is taken into account. The code effectively sets the points at which you will start paying each rate of tax. So by default your salary will take a greater share of the total tax you have to pay unless you arrange something different with HMRC.

    Edited to add my post crossed with CBO who, again, is completely accurate and more succinct than me!).
  9. I had one other thought: when I left this all looked pretty complicated but it become a lot clearer within a couple of months of leaving, as finances stabilise after all the changes. If your circumstances are particularly complicated you can't do better than joining the Forces Pension Society who are really helpful (as, perhaps surprisingly, were HMRC when I contacted them). In fact, join FPS anyway - you never know when you'll need them. I think it's a good use of a few quid - equivalent to a total of 8 pints each year, where I live.
  10. Thanks for the tips. I have already joined FPS and between them and HMRC I'm sure I'll end up paying what I should
    • Like Like x 1
  11. FFOC!
  12. Wow,,,,just checked thinking 'I bet noone has answered this' to find the info & links I needed - power to ARRSE !

    Thanks to all & may Santa stuff your stockings with all you desire