Exceeding tax-free pensions savings limit letter

[Vladimir_Ilyich_Crab]

Yesterday I received a letter from Veterans UK telling me I exceeded the 'standard tax-free pensions savings limit of £40000 for tax year 2017/18'.

This came as a surprise on many levels. First, I thought my pension was non-contributory and as part of that, someone else administered it and made sure it was paid taxed and matured appropriately, until such time as I can draw it. Let's call them for want of something better, 'the Pension Pixies'.

Second, I had to use the 11-page letter and extract information to put into an online tax calculator, using a 37 slide .ppt online as a guide. Linked to the above, I thought the Pension Pixies did all that.

Third, the Annual Allowance Limit, detailed in the 11-pager, remained at £40k except for between 6 Apr 15 and 8 Jul 15 - when it is listed as £80k. Why should it have bounced up for a 3-month period?

Fourth, the pension input amount seems to have flexed in the last 4 years. Started at £10k, went down to £9k, and then went massively up until it sits over £50k. I (clearly erroneously) thought it would just tick upwards at steady amounts annually linked to a magical figure of RPI/CPI (whichever is the cheapest rate the government can use to make increases).

Had the calculator said I owed anything, I had 3 options to make payment - scheme pays, adjust your tax code, or pay HMRC directly. Again, I thought the Pension Pixies did all this.

In the event, the figure owed was £0 - which confuses me as to why I even received this letter. One of the guides hinted it may be linked to having cleared the 16 year point.

One question I have not resolved is, had I owed tax, why should I be self calculating about by non-contributory pension, as opposed to simply waiting for the taxman to send me a bill for x and then paying it?

Anyone else encountered this - it has made me think I may need to consider doing some advanced adulting, and I will need to drink to cope with this.

 

[Ecosse]

I'm a bit confused (and tax law ignorant) how this can even occur..
SWMBO's tax free sum ( senior teacher with 42 years unbroken service) was tax free with a payout of £117,000?
Then...40/80's monthly final salary.
Then...you in particular get a 0 pay-back...... after winding you up!
Bastids.

 

[shiny_arrse]

@Forces Pension Society is yer man for this sort of question.

 

[spaz]

I had a letter too. A load of old bollocks. I don't owe anything.

I suggest that Veterans UK spend less effort in wasting my time and more effort getting my pension paid, perhaps even with a little letter telling me how much and when I will receive it.

 

[Forces Pension Society]

These letters about AA come out each year but this year (because of the late pay settlement) they are very late and are being received very close to the self assessment tax deadline. We at the Forces Pension Society have been asked to translate/check many such notifications for our members.

Basically it all boils down to 'Pension Tax Simplification' (haha). From 6 April 2006 HMRC swept away about 8 pension tax regimes and replaced them with 2 mechanisms for controlling pension savings:

The Life Time Allowance (LTA) governs the maximum you can build up in a tax privileged scheme before incurring a big tax charge.

The Annual Allowance (AA) governs how much a pension can increase in value over one 'input year' before incurring a tax charge. This is nothing to do with whether the scheme is contributory or not - it is simply how much the value has increased. It might seem daft for Vets UK to send out a letter saying you owed nothing but the way they work out the increase is not straight forward.

 

[spaz]

It might seem daft for Vets UK to send out a letter saying you owed nothing but the way they work out the increase is not straight forward.

They don't do that though. They send you a 20 sided load of bumpf saying that you 'may' owe money and that you must go onto the .gov website armed with their 35 slide .ppt presentation idiot's guide, fill in the form with the figures that they provided in their initial letter, then discover that you didn't owe anything in the first place and that Veterans UK knew that all along.

Wãnkers.

 

[Vladimir_Ilyich_Crab]

They don't do that though. They send you a 20 sided load of bumpf saying that you 'may' owe money and that you must go onto the .gov website armed with their 35 slide .ppt presentation idiot's guide, fill in the form with the figures that they provided in their initial letter, then discover that you didn't owe anything in the first place and that Veterans UK knew that all along.

Wãnkers.

I did wonder if that was it, but again, my surprise was because I thought any owed would be picked up by the taxman and just billed. Rather than a convoluted process resulting in me wondering why in my 17th year of service never having filled in a tax return, I have to now and I might get smashed with a mahoosive bill at the end.

 

[spaz]

I did wonder if that was it, but again, my surprise was because I thought any owed would be picked up by the taxman and just billed. Rather than a convoluted process resulting in me wondering why in my 17th year of service never having filled in a tax return, I have to now and I might get smashed with a mahoosive bill at the end.

Different departments I expect. Mine was triggered by an increase in the value of my pension as I hit 22 yrs and my lump sum was added to my pension pot.

To work out whether you owe tax they look at pension increase plus taxable income over a number of years.

 

[Vladimir_Ilyich_Crab]

Different departments I expect. Mine was triggered by an increase in the value of my pension as I hit 22 yrs

This makes sense - I think the idiot guide FAQ gave potential reasons for it being the hitting of 22 years for non-commissioned service and 16 years for offr service - the latter of which I clipped last year. But still was pleasantly bemused to reach a £0 owed figure at the end.

 

[KuwaitFox]

I won’t bore you with my story other than to say you should be relieved to have a £0 balance to pay. After filling out the AA tax calculator I find myself with just under £30k to pay and I can assure you I am not a General!

You are then left with 2 choices: either write a cheque or reduce your lump sum and pension for life. Makes all the hard work worthwhile!

 

[spaz]

I won’t bore you with my story other than to say you should be relieved to have a £0 balance to pay. After filling out the AA tax calculator I find myself with just under £30k to pay and I can assure you I am not a General!

You are then left with 2 choices: either write a cheque or reduce your lump sum and pension for life. Makes all the hard work worthwhile!

30k to pay, or 30k to pay tax on?

 

[KuwaitFox]

30k to pay, or 30k to pay tax on?

I exceeded by more than £74k and 40% of that is around £30k.

 

[spaz]

I exceeded by more than £74k and 40% of that is around £30k.

Oof!

 

[Ned_Seagoon]

I won’t bore you with my story other than to say you should be relieved to have a £0 balance to pay. After filling out the AA tax calculator I find myself with just under £30k to pay and I can assure you I am not a General!

You are then left with 2 choices: either write a cheque or reduce your lump sum and pension for life. Makes all the hard work worthwhile!

Similar story here. And no, I was not a general either. Perhaps my own ignorance but, after successive annual statements saying no need to worry, when it came to retirement my predicted pension was suddenly abated by a grand or so per year. Apparently it was a foible of timing and the thresholds applied in the year that I retired. Still not sure I still fully understand or accept the logic.