Pension tax grab - lump sums?

Discussion in 'Finance, Property, Law' started by MrPVRd, Sep 20, 2010.

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  1. Colleague of mine has said her husband (teacher) was summoned to a school meeting where they were told their lump sums would be taxed, with plenty of discussion of strikes, work to rule etc. Rumour has it that it's coming to all publicly funded pension schemes....local authorities, NHS etc.

    Tax free lump sum is one of the features of the various AFPSs. Could this be applied to the Armed Forces or would it require further legislation?
  2. Glad they are able to say what is going to happen with such confidence. Nobody else has got a clue as yet.

    Restriction of pensions tax relief: a discussion document on the alternative approach - HM Treasury

    The Consultation is full of holes, likely to create many anomolies but whatever fudge is hammered out, will most likely kill off most private sector final salary pension schemes and in the public sector make them much more expensive for the employee and cheaper for the employer, which is of course the entire point.

    (However whatever it is will be better than what Labour had forced through as legislation before election and the Con/LibDem Government repealed as one of their first legislative acts. Their big idea was to treat employers pension contributions as taxable benefits in kind, and thanks to various wheezes built in that started at a remarkably low level of earnings. So you would have been taxed on money you never saw and taxed again when you eventually got the pension.)

    What you can be sure of is that whatever comes out of the current exercise is not going to be good
  3. Out of interest which Education authority?
  4. Auld-Yin

    Auld-Yin LE Reviewer Book Reviewer Reviews Editor

    Well I am glad that I have my lump sum from my employment pension, so no longer have to worry about that.

    The working class can kiss my arse............................ :)
  5. I was always surprised that Brown did not introduce this as he screwed up most things associated with Pensions .

    There could well be some major legal diificulties here as a Pension Sceme is I suppose a Contract and all of mine clearly detailed Tax Free Lump Sums ... long since taken ... so who would pay the Tax ... individuals or Pension Suppliers ?
  6. Sixty

    Sixty LE Moderator Book Reviewer
    1. ARRSE Cyclists and Triathletes

    The document you link to is actually discussing tax relief on contributions in to a pension rather than out of one.

    Mr PVRd, I would of course hesitate to doubt what your source has been told and acknowledge that anything's possible but I suspect it'll be a cold day in Hell if taxation of lump sum (within Lifetime Allowance) comes to pass.
  7. In Scoland, so not sure how this relates to rest of UK.
  8. oldbaldy

    oldbaldy LE Moderator Good Egg (charities)
    1. Battlefield Tours

    It would need to be included in a finance bill.
  9. Indeed it is but as ever the devil is in the detail. My brother in law is an IFA and he is by turns baffled and disgusted by the proposals, some of which are wholly unworkable. A MKII version will be along soon but do not expect it to be much better

    The core matter under discussion is the Annual Allowance for chucking stuff into a pension pot without adverse tax consequences, currently £225K.

    What is getting people jumpy is that one of the proposals is to limit the Annual Allowance to a much lower number, £30-£45K

    But, and this is a big but, when somebody on quite ordinary pay in a defined benefit scheme is retired early or made redundant there is often a really big jump in the "value" of their pension and lump sum so that it could easily be above the £30-£45k proposed Annual Allowance and so taxable at their highest rate of tax.

    You will find on page 8 of the July 2010 document words to the effect that the Government is not minded to grant relief in such circumstances but will consider proposals from interest groups that would provide protection "in particularly hard cases". Thanks.

    Complex area, lots of still moving parts, law of unintended consequence writ very large and very clear risk many will be cr@pped on, hence Union wailings.

    Depending on the method adopted these changes are expected to "yield" between £3,000m and £5,000m per annum from 2012/13 onwards. That is more properly described as "tax yield"
  10. vauxhall

    vauxhall Sponsor

    Pension schemes are normally silent about tax as employers, including the MOD, do not have tax raising powers. The tax status of lump sums is set out in the Finance Act. The last one which looked at pension lump sums was in 2004 and said that schemes could introduce rules to allow up to 25% of the pension pot to be taken as a tax free lump sum. AFPSs/RFPS stuck with 3xpension.

    As others have said the pension tax change which is under 'consultation' at the moment is the annual allowance (AA). The AA is the annual limit on the amount by which a pension pot in a tax privileged scheme may grow before tax charges are applied. The proposal is to cut the limit from over £200K (where it only caught the very senior) to about £40K. Those with modest pay rises or promotions will not get caught for extra tax but I worry about those getting a promotion in a year where there has been a good pay rise.

    Current AA rules do not apply the test in the final year but the proposal is that it should be applied. Unless there is an exemption for ill health retirements I foresee an own goal if injured Service personnel are discharged and presented with a large bill payable when the 'gain' occurs!
  11. interesting to note that it's no longer called tax free cash, but Pension Commencement Lump Sum. 2 important words removed - tax free. Wonder where that one is going to end up???
  12. Sixty

    Sixty LE Moderator Book Reviewer
    1. ARRSE Cyclists and Triathletes

    It has always been known as Pension Commencement Lump Sum by everyone except IFAs and policyholders. Insurers and pension companies generally never call it tax free cash.
  13. Well I have just had some correspondence today about my last remaining Personal Pension Scheme , with a major pension provider , which I had delayed converting into an annuity and the offer contains details including the statement " Tax Free Lump Sum " . I am expecting written quotes from other sources as I have spent some time today to see if I could get a better annuity .... will check the wording carefully when I receive them ,
  14. Sixty

    Sixty LE Moderator Book Reviewer
    1. ARRSE Cyclists and Triathletes

    Apologies, my wording was poor. I meant in the terms and conditions, policy documents and schedules. They may very well use it in direct communication with customers to simplify the language.
  15. I see what you mean now however if these Pension Commencement Lump Sums become taxable I can see an awful lot of very annoyed people saying " I got written forecasts detailing a tax free lump sum ... I have been misled ... the Pension Supplier should pay the tax and I should still get my full tax free amount as promised as it was on that basis I contributed " ... interesting situation . My knowledge of pensions is quite small and it appears to be a subject which most take little or no interest in until near retirement ... especially reading all the T's & C's ... could well be another financial services scandal if taxation is introduced .