Promotion and Tax bill - Scheme Pays info

[Hueymeister]

Have tried the MoD Intranet, RAF IBN 14/11 etc, but am looking for some info on the bill incurred on promotion..anyone able to help?

[LFFC]

As on old sweat long retired from the RAF (1995), I find this incomprehensible - are today's guys financially punished by the filthy taxman on promotion?
HB,

So much so that, I'm told if you're very high rank and wish to advance much more, then don't expect to leave with any gratuity. :ooh:

[Halton Brat]

As on old sweat long retired from the RAF (1995), I find this incomprehensible - are today's guys financially punished by the filthy taxman on promotion?

If so, dear God - what have we come to?

HB

[cazatou]

How come we got the Answer before the Question?:confused:

[Red Line Entry]

Huey - well done mate, about time (und vielen Dank fuer den Flug in Bayern, den vor acht Jahren du fuer mich angeordnet hast)

[Hueymeister]

Red Line,

Den Flug in Bayern..Es war mir ein Vergnügen! Aber ich habe nicht gefördert wurde.

Nahh not me promoted..no point..PA all the way...just looking for some info for a mate who's been promoted to Wg Cdr...

[Exiled]

I can assure you that unless the guy has loooong service (circa 30 years) he has nothing to worry about. Tell him to look up the DIN and work it out for himself. If he can't he should turn down the promotion as he has failed the aptitude test.

[snafu]

So let me get this right, you're just 'asking for a friend'?! :cool:

[Whenurhappy]

T Letter 334/11 was distributed a day or two ago via Chf Clks, along with a plethora (or is it a thicket?) of DINs relating to this scheme.

The Scheme Pays means that it your are promoted and accruse a 'notional' gain to your pension pot of greater than GBP50K, the tax laibility will be taken from your pension when you draw it.

In other words: promotion = increased pension pot (notional) - increased tax laibility.

Encouraging, ain't it?

[I'm Off!]

Huey? Promoted to Wg Cdr? Really? He must genuinely be asking for a friend as I can't think of which planet Huey would be a Wg Cdr!!

(Hello Huey mate, how are you?)

[lj101]

Huey

A friend has just been promoted from Wg Cdr to Group Captain with around 25 years service. He has a tax bill of around £17,000 to pay by early 2013 OR if he does not pay this bill, takes a hit of up to £100,000 on his pension over its average term.

Best L

[Jumping_Jack]

Is this to do with the Pension Tax Relief Lifetime Allowance being reduced? The DIN on the subject states:

'It is unlikely that Service personnel below the rank of 2* will exceed the revised lower LTA limit upon their retirement, unless they have additional pension arrangements beyond those provided by the Armed Forces pensions schemes. Those AFPS members affected will vary depending on future changes to the LTA and increases in military pay.'

How would the Wg Cdr/Gp Capt jump be affected (particularly as you can use allowances from previous years...)

I'm sure that there was a thread on this previously....

[lj101]

JJ

I have no idea me old - that is what his accountant backed up by the tax office has told him.

[Whenurhappy]

Above quoted T Letter 334/11 say this:
For the majority of personnel the introduction of Scheme Pays will have little impact. However, a small number of sqn ldrs and above leaving the Service on or after 11 Aug 11 who may have incurred a tax liability need to be aware of the option as they need to elect Scheme Pays before they leave.
whereas DIN967_2011 says this:
The impact of these changes will depend very much on individual circumstances but it is most unlikely that any Other Ranks, or any Officer below OF 3 (Major and equivalents), will be subject to a tax charge.

Hmm, not the same thing...

[MechGov]

Huey, this friend, It can't be the last sqn ldr you worked for and if its the new one then all hope is lost!

[Excommunicator]

Looking at current pay scale for (as an example) a 6 yr Wg Cdr on promotion to Gp Capt the pay increase is only about 6.7k. For pilots, with the accompanying change in flying pay, this drops to 4.3k. A personal tax liabilty of 17k as lj is quoting would mean a pilot would be down on the deal for the best part of 4 years (and that's ignoring tax!).

This unintended consequence of the change in regulations is bound to impact people accepting promotions (who would accept promotion onto a "job-by-job" contract when you could end up enemployed before earning enough to cover your tax liability?). I dread to think what kind of bill the good officer Peach has just been presented with!!:eek:

[LFFC]

Excommunicator

Forget flying pay as that never entered the pension calculation in the first place.

As people are now finding out, the tax calculation for lifetime and yearly increase in pension pot is a minefield. Read the guidance very carefully and remember that any unused portion of the last 3 years of allowance can be rolled forwards to allow a potential maximum £150,000 pension pot increase on promotion. But also remember that any yearly increment in pension (or pay-rise increment when there's not a pay freeze in force) also counts, so you might not have as much as that to play with. And if you're a fast mover rising rapidly in rank - then watch out!!

I understand that this subject took up a disproportionate amount of time during the last few senior officer command courses at Shriv and many long faces were noted in the bar!

So if the Gp Capt mentioned by LJ101 is a fast mover who has been contributing annually to his own personal pension plan, then I quite believe that he could well be in for a big hit. :ouch:

PS. Remember also that your pension doesn't go up until a few years after you've been promoted. So if you were promoted 2 years ago and thought you got away with it - think again!!

[Melchett01]

A really depressing thread, but frankly what I have come to expect from the MOD and its constant claims of how much it values its personnel. It's hardly an incentive to work hard and progress knowing that you are going to get a tax bill for your efforts. Only in the 21st Century MOD :(

[Biggus]

....er, what's it got to do with the MOD? This is an action from the Treasury which effects all UK citizens. The MOD didn't get an exemption - but then why should it.

Maybe it could offer to internally compensate individuals, but no doubt that it itself would be seen as a taxable perk by the Treasury.....

Lay the blame where it is due, at the door of the tax office.

[Melchett01]

Biggus perhaps I should have said it is what I have come to expect from the UK as a whole. The general rush to the bottom, a celebration of mediocraty and hurdle after hurdle put in peoples' paths to discourage them from getting on in life and improving.

But yes, I will give you the fact that it is a Treasury measure designed to stop the 'fat cats' minimising their tax liabilities by shovelling large amounts of their already taxed salaries into pensions. It just happens to hit everyone else as well - I'd like to say the law of unintended consequences, but it that would be being overly generous as this government clearly thinks it needs our money more than we do. And for individuals that spend all their time on ops seeking to minimise collateral damage, that is effectively what MOD personnel are here.

But when the MOD spends all its time saying it values its people and time after time I have seen VSOs at or very close to the top state that pensions are a red line, the MOD seem to have rolled over very easily when that red line is first challenged and their claims yet again seem very hollow. At the end of the day, this measure will do more long term damage than anything else as the decent people who we should be promoting do the maths and work out they are better off not taking promotion. If the MOD really wanted to, it could have put up more of a fight than it did.

[MaroonMan4]

Have I just woken up in a parallel universe?

Let's be clear, it doesn't effect my personal circumstances, but as a 'line manager' (and I hate that term) I can confirm from the shop floor that:

1. No one understands the DIN or how to calculate the true impact of this new tax implication. As military professionals (and not accountants/pension experts) I am losing people for hours on end trying to wade through the complex system, with absolutely no confidence or appetite for SPVA to deal with individual circumstances (especially on pension projections for potential promotions).

This is really a very inefficient and unfair way of communicating this information that has significant potential implications to service personnel

2. How on earth do I try and guide/mentor bright, 'rising stars' within the RAF to step out of the cockpit, broaden and go for the stars (literally!), as well as get all of that command experience required for the DDH/ODH responsibilities now required in the post Haddon Cave era of the MMA? Additionally, let's not forget that after this years further reduction in terms and conditions that flying pay reduces further after only 2 years out of the cockpit, so for some this is a marked drop in income before a down stream pension implications.

What is the point in getting promoted beyond a Sqn Ldr, why bother stepping out of the cockpit, working your heart out for promotion, only to have any financial incentive removed by a combination of tax on pension and a possible reduction in flying pay.

I just don't get it? Where is/was the senior RAF Personnel representatives when this was being staffed? Surely they must recognise that all the bright kids will either leave for more lucrative jobs or hang around and hope for PA. Are we really expecting our future leaders to strive for promotion for the 'love' of the job or the 'honour' of command? Loyalty goes two ways, and sadly regardless of any HMG/MoD spin the service covenant is truly broken, so that kind of service loyalty has well gone now as individuals look after themselves (because as this thread indicates - no one else is!)

Is this just for us or is it the same for aviators in the other services? If it is tri-service then potentially the look of the stars of the future may look very different and potentially may not be the best, brightest and most able, as they may be happy in their flying suits, content as a capped Sqn Ldr.

[Whenurhappy]

This tax change, introduced by the previous administration, sort of crept up on the MOD. The Department challenged the Treasury over what is clearly an unintended consequence of an effort to curtail the largesse of (some of) those in the Financial Services Industry.

I've had the liability in my circumstances calculated twice - by SVPA and by a financial planner, and have ended up with wildly different answers. There is scope for a Judicial Review of this regulation on the basis that the Service pension 'pot' exisits only in the ether - it is not a fund which can be invested, nor drawn upon in imaginative ways, unlike 'proper' pension fund managers (mind you, it also means that the pension pot can't be squandered by reckless gambling, err, I mean investment, or lost through fraud, for example).

[Wensleydale]

What is the point in getting promoted beyond a Sqn Ldr, why bother stepping out of the cockpit, working your heart out for promotion, only to have any financial incentive removed by a combination of tax on pension and a possible reduction in flying pay.


Very true! I have seen too many young squadron leaders spending their lives commuting and/or working very long hours to the detriment of their family life (and mostly with little thanks). The result was that I happily signed on as Spec Aircrew - changed to PAS - stayed in the cockpit and retired on a wing commander's pension. The system worked for me, but I readily admit that it wasn't fair and doesn't encourage the best to stay.

[LFFC]

If it's any help, here's HMRC's Guidance to Scheme Administrators (http://www.hmrc.gov.uk/pensionschemes/annual-allowance/scheme-admin-guide.pdf).

One key line reads:


Where a scheme pays a member’s annual allowance charge on a voluntary basis then they do not become jointly and severally liable for the charge and the liability remains with the member.


Good luck all.