Annual increment triggering pension tax bill

[Melchett01]

Received a rather unwelcome letter this morning saying I had incurred a tax charge linked to my pension. Apparently simply by moving up the increments as a mi-level, standard pay spine sqn ldr was enough to exceed the annual allowance.

The letter references a DIN that talks about annual allowances and by sheer coincidence I saw a copy earlier in the week, but that suggested that exceeding the annual allowance would be more likely on promotion or if you are sufficiently senior e.g. gp capt / air cdre level. And this is why I find it difficult to understand why individuals as low down the food chain as an OF3 being stung simply for incremental progression.

I'm clearly going to have to sort out FPS membership as well as crunching the numbers myself - there's something that doesn't seem quite right in the space of 2 consecutive tax periods one year I undershot the annual allowance by 34k and whilst the following year I exceeded it by 2k. I'd love to know how those numbers have been worked out if there's been no promotion or significant pay rise above and beyond moving up an increment and getting the usual 1%

Fortunately I don't have to actually stump up cash it seems as I can carry forward previous year's unused allowance but it does seem a bit odd, if not a little insidious, for relatively junior / mid ranking individuals rather than pensions 'fat cats' being stung like this. Anybody else had experience of this lately? Are Veterans UK pensions calculations usually accurate or is this likely to be a mistake given the fluctuating values? It's going to get rather tedious rather quickly if this is going to turn into an annual bill.

[Gnd]

Got to be a cockup - go FPS early!

I go the new annual letter and it was 17 years service short so guess the taxman has missed me - good show but utter bull so lets see if the new annual letter fixes its self next year. So can't be bothered to chat to the AFPS!!!

[glad rag]

Simple answer is they [or the exchequer] are bent.

Gotta pay for all these punitive missions, refugees and whatever they can roll into one single blank cheque somehow-and your the somehow!!

[Heathrow Harry]

increment progression and similar bracket creep are standard Treasury dodges to get increased tax without any headlines or a Budget

A lot of people are caught by Stamp Duty etc etc as the price of their houses increased to above a cut-off

No point in complaining

[Melchett01]

Heathrow Harry,

I'm well aware of the role of fiscal drag in being a nice little earner for HMRC, but surely definitely something not right here if even by the Governement's own admission the tapered annual pensions allowance

will restrict pensions tax relief by introducing a tapered reduction in the amount of the annual allowance for individuals with income (including the value of any pension contributions) of over £150,000 and who have an income (excluding pension contributions) in excess of £110,000

On that basis I can't see how any sqn ldr who hasn't been promoted and has only had 1% rather than inflation busting pay rises can fall into this bracket. Hence my questions as to whether anybody else has experienced this and how accurate are Veterans UK with a calculator!

[Al R]

Melchett,

If you want me to have a look, message me your contact details. The reduction could easily create difficulty for OF4 (especially, some specialists), but OF3 on incremental rises? I'd be very surprised (and interested) - it was a scenario that was warned.

[Melchett01]

I had an interesting if not entirely informative discussion with JPAC this afternoon, summarized as follows:

1. The Pensions Tax section at JPAC has been rather busy of late; apparently rather a lot of people are equally baffled by their calculations.

2. Despite acknowledging that both pensions and therefore pensions input values should increase year on year given that pension values are a function of numbers of years served, they couldn't explain why the pension went up over the period in question whilst the pension input values declined the first 3 years of the period. The explanation given was that it was due to CPI being applied at the start of each period. On asking whether a positive rate of CPI should result in a growth rather than decline in pension input values, they couldn't explain it, simply reiterating that it was down to CPI and complex rules. It seems even the Pensions section can't explain the pensions.

3. The sudden spike in pension input value at the end of the period that was responsible for tipping over the annual allowance was allegedly due to my hitting my 16/38 point on the 75 scheme. The move from preserved to immediate pension means the pension value shoots up. Apparently.

They then noted that this criteria was in addition to individuals being promoted or of senior rank being hit through ordinary incremental progression as described in the DIN. If they knew about this, why was it not publicized in the DIN? However, if correct, then I guess there will be a fair few others in the same boat i.e. mid-level sqn ldr who didn't transfer and who reached their IPP before the transition to AFPS 15.

4. I was told this should be a one off as the new scheme was designed to even out accrual rates as well as being less generous, therefore reducing the chance of spikes. Interesting to hear JPAC actually admitting what we all suspected - the new scheme has been deliberately engineered to be less generous.

So that was the official explanation, and if correct, then I suspect there are likely to be a fair few others in receipt of equally baffling letters. I think I'll still be approaching FPS for their perspective!