Fixed Protection Pension
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The EDP is not part of the pension scheme so does not count against the LTA. What is counted is the preserved pension and preserved lump sum (plus CPI increases).
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Voxpop,
Thank you. That is clear.
Not a question, but a comment, I do wonder quite what the EDP is sometimes. In many ways it looks like a pension. It goes on my tax return in the space for a pension. Like a pension it is only subject to income tax not NI. It is not earnings so I cannot make further pension contributions from it and the documents I occasionaly get from xafinity (now equiniti) seem to refer to it as a pension.
Thank you. That is clear.
Not a question, but a comment, I do wonder quite what the EDP is sometimes. In many ways it looks like a pension. It goes on my tax return in the space for a pension. Like a pension it is only subject to income tax not NI. It is not earnings so I cannot make further pension contributions from it and the documents I occasionaly get from xafinity (now equiniti) seem to refer to it as a pension.
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LJ,
For the past 3 months or so I have been batting this about with HMRC, trying to get one or two definitive answers about the EDP (scary how many 'definitive' answers you can get). The detail that is promulgated isn't exhaustive. Dealing with HMRC though, is.
WW,
I have some useful detail for you, I will post it later.
For the past 3 months or so I have been batting this about with HMRC, trying to get one or two definitive answers about the EDP (scary how many 'definitive' answers you can get). The detail that is promulgated isn't exhaustive. Dealing with HMRC though, is.
WW,
I have some useful detail for you, I will post it later.
The whole EDP vexes me. Seemingly introduced as a 'payment' rather than 'pension' to get around the revised minimum age rules for drawing a pension, but (so far) HMRC seems to treat it exactly the same as the AFPS75 pension.
I hope they do not suddenly change their minds.
I hope they do not suddenly change their minds.
Originally Posted by late-joiner
I do wonder quite what the EDP is sometimes. In many ways it looks like a pension. It goes on my tax return in the space for a pension. Like a pension it is only subject to income tax...
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EDP:
The Mortgage Market Review (MMR) which the FCA has just pronounced upon is going to make the role of the EDP even more important. It comes into force on 26 April and one of the aspects which might affect some here is that mortgage holders can borrow on an interest-only basis as long as there is a credible repayment strategy.
The attitude of the banks towards the EDP is inconsistent. Lloyds only helped out with someone here because the current head of consume lending policy once happened to work in the temporary Lloyds Bank at Chater Road (RAF Wittering). I have asked Forpen if it could coral its administrative might and try to fuse a common lending approach to the EDP but I heard nothing back.
HMRC's attitude towards it is equally variable. I spend about 2 hours a week chatting with the dept in Liverpool which has the say. Part 2 Chapter 5 of the Finance Act 2005 differentiates between redundancy payments and contractual payments - HMRC accepts that it isn't a pension payment (which it isn't of course) but is happy to pass the decision to the various pension companies. Who can go around like headless chickens - the banks look on it as one, for instance.
This is important because if it counts as 'relevant earnings', it can count towards receiving tax relief for a pension contribution - important if a Higher Rate tax payer has limited need for capital and liquidity with his/her EDP and wants a last hurrah force multiplying bang per buck as a wage earner. It isn't for everyone, take advice etc, but for someone with a career profile cruising horizontally the annual pension contributions are notionally modest, so, making use of the previous 3 years unused annual contributions, an uplift can run into the £ tens of thousands.
The Mortgage Market Review (MMR) which the FCA has just pronounced upon is going to make the role of the EDP even more important. It comes into force on 26 April and one of the aspects which might affect some here is that mortgage holders can borrow on an interest-only basis as long as there is a credible repayment strategy.
The attitude of the banks towards the EDP is inconsistent. Lloyds only helped out with someone here because the current head of consume lending policy once happened to work in the temporary Lloyds Bank at Chater Road (RAF Wittering). I have asked Forpen if it could coral its administrative might and try to fuse a common lending approach to the EDP but I heard nothing back.
HMRC's attitude towards it is equally variable. I spend about 2 hours a week chatting with the dept in Liverpool which has the say. Part 2 Chapter 5 of the Finance Act 2005 differentiates between redundancy payments and contractual payments - HMRC accepts that it isn't a pension payment (which it isn't of course) but is happy to pass the decision to the various pension companies. Who can go around like headless chickens - the banks look on it as one, for instance.
This is important because if it counts as 'relevant earnings', it can count towards receiving tax relief for a pension contribution - important if a Higher Rate tax payer has limited need for capital and liquidity with his/her EDP and wants a last hurrah force multiplying bang per buck as a wage earner. It isn't for everyone, take advice etc, but for someone with a career profile cruising horizontally the annual pension contributions are notionally modest, so, making use of the previous 3 years unused annual contributions, an uplift can run into the £ tens of thousands.
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Al R, many thanks for the information. As I mentioned I hope/expect to retire from my current job in ~15 years, although much will depend on pension calculations - could be before then, could be after!
At least I have a few years to get my figures in order.
I note that Echelon Wealthcare describes itself as 'Specialist Independent Financial Advisers for HM Forces', would your / its services be available to a retiree such as myself? I feel I probably need to continue this discussion, outside the bounds of this forum, at some point in the (near-ish) future!
At least I have a few years to get my figures in order.
I note that Echelon Wealthcare describes itself as 'Specialist Independent Financial Advisers for HM Forces', would your / its services be available to a retiree such as myself? I feel I probably need to continue this discussion, outside the bounds of this forum, at some point in the (near-ish) future!
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The 2004 Finance Act put paid to pensions before age 55 so AFPS 05 ( which would the the scheme for new entrants going forward) could not be designed with an Immediate Pension. However, MOD needed something to pull people through to about age 40 and to compensate them as most people do not get to serve to 55. Thus the EDP was born and is part of a completely separate scheme.
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EDP:
HMRC's attitude towards it is equally variable. I spend about 2 hours a week chatting with the dept in Liverpool which has the say. Part 2 Chapter 5 of the Finance Act 2005 differentiates between redundancy payments and contractual payments - HMRC accepts that it isn't a pension payment (which it isn't of course) but is happy to pass the decision to the various pension companies. Who can go around like headless chickens - the banks look on it as one, for instance.
This is important because if it counts as 'relevant earnings', it can count towards receiving tax relief for a pension contribution - important if a Higher Rate tax payer has limited need for capital and liquidity with his/her EDP and wants a last hurrah force multiplying bang per buck as a wage earner. It isn't for everyone, take advice etc, but for someone with a career profile cruising horizontally the annual pension contributions are notionally modest, so, making use of the previous 3 years unused annual contributions, an uplift can run into the £ tens of thousands.
HMRC's attitude towards it is equally variable. I spend about 2 hours a week chatting with the dept in Liverpool which has the say. Part 2 Chapter 5 of the Finance Act 2005 differentiates between redundancy payments and contractual payments - HMRC accepts that it isn't a pension payment (which it isn't of course) but is happy to pass the decision to the various pension companies. Who can go around like headless chickens - the banks look on it as one, for instance.
This is important because if it counts as 'relevant earnings', it can count towards receiving tax relief for a pension contribution - important if a Higher Rate tax payer has limited need for capital and liquidity with his/her EDP and wants a last hurrah force multiplying bang per buck as a wage earner. It isn't for everyone, take advice etc, but for someone with a career profile cruising horizontally the annual pension contributions are notionally modest, so, making use of the previous 3 years unused annual contributions, an uplift can run into the £ tens of thousands.
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Another potential dumb question/comment warning. My wife (Consultant Surgeon) has been advised that fixed protection means she will have to stop contributing to her pension (sorry if that is over simplifying, I don't really understand it). She's basically been told to standby for some 'individual protection' rule making its way through parliament at the moment. Is this ok advice do you think?
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fabs,
It isn't a dumb question at all. Individual Protection, as we know it, has been around for a while. It will be rolled out again, when/if the lifetime allowance drops further. If your wife hasn't considered and/or taken out fixed protection, she has not long at all to make her mind up - pretty unrealistic now to be objective - given the consequences of getting it wrong.
One aspect though of planning in an abstract sense and being purely contingent in a theoretical sense, is that if she (forgive me!) divorces you and if there is a pension debit order made against her 'pot', her allowance resets. If she has a pension in existence already in this tax year, she can retrospectively refer to it and top up an unused annual allowance if she wanted to get her retirement saving back on track.
But.. make sure she takes proper regulated advice about this. The consequences of getting it wrong could be in the order of tens of thousands of pounds.
LJ,
Sorry, my file was growing nicely and then the budget impacted with end of year stuff. The devil is in the detail - that's the bottom line. You can use it if you use it taking into account other rules and guidance. Recycling guidance wasn't devised to trap the unwary, just the unscrupulous. In HMRC’s words, there must be ‘a conscious decision’ and the onus is on HMRC to prove a pre-planned intent to recycle. But guidance exists to help you too, and as long as you play within the rules, you should be ok.
There are lots of relatively simple, straightforward and legitimate ways you can increase the levels of contributions into a personal pension following receipt of EDP/PCLS(tax free cash from a pension). They have to be done diligently and taking into account guidance (see below). If you are clumsy, unsubtle and inarticulate about it, and that isn't a metaphor for encouraging weasely deceit, then expect the sound of outraged HMRC Omegas on gravel at 0230.
However, if you have a plan in place that is thoughtfully considered and well documented, if you are diligent, law abiding and acquiescent enough to accept that the rules are fair and exist to help and protect, you should have nothing to worry about - if your contributions increase after taking a PCLS/EDP. After the budget, it is now even more consistent with GO's declared modern principles of a flexible approach to pension saving and retirement.
However, for the avoidance of doubt and for peace of mind, always take personal and regulated advice that you trust, and this is chapter and verse on recycling. Bear in mind too, that as part of growing your retirement income, if you want to subsequently refer to a year's unused pension allowance, you have to have a pension established in that tax year. It might be that you set one up with a small payment - but you'll have at least done it.
I'm acutely aware of not stepping over the line into offering advice so I offer that as generic, non specific information. Sorry for being opaque and I sense you have one eye on the calendar. Message me and I can probably help you a little more. I'm working this weekend and my number can be found indirectly elsewhere in this thread.
RPSM04104900 - Technical Pages: Taxation: Unauthorised Payments: Recycling of pension commencement lump sums: Contents
It isn't a dumb question at all. Individual Protection, as we know it, has been around for a while. It will be rolled out again, when/if the lifetime allowance drops further. If your wife hasn't considered and/or taken out fixed protection, she has not long at all to make her mind up - pretty unrealistic now to be objective - given the consequences of getting it wrong.
One aspect though of planning in an abstract sense and being purely contingent in a theoretical sense, is that if she (forgive me!) divorces you and if there is a pension debit order made against her 'pot', her allowance resets. If she has a pension in existence already in this tax year, she can retrospectively refer to it and top up an unused annual allowance if she wanted to get her retirement saving back on track.
But.. make sure she takes proper regulated advice about this. The consequences of getting it wrong could be in the order of tens of thousands of pounds.
LJ,
Sorry, my file was growing nicely and then the budget impacted with end of year stuff. The devil is in the detail - that's the bottom line. You can use it if you use it taking into account other rules and guidance. Recycling guidance wasn't devised to trap the unwary, just the unscrupulous. In HMRC’s words, there must be ‘a conscious decision’ and the onus is on HMRC to prove a pre-planned intent to recycle. But guidance exists to help you too, and as long as you play within the rules, you should be ok.
There are lots of relatively simple, straightforward and legitimate ways you can increase the levels of contributions into a personal pension following receipt of EDP/PCLS(tax free cash from a pension). They have to be done diligently and taking into account guidance (see below). If you are clumsy, unsubtle and inarticulate about it, and that isn't a metaphor for encouraging weasely deceit, then expect the sound of outraged HMRC Omegas on gravel at 0230.
However, if you have a plan in place that is thoughtfully considered and well documented, if you are diligent, law abiding and acquiescent enough to accept that the rules are fair and exist to help and protect, you should have nothing to worry about - if your contributions increase after taking a PCLS/EDP. After the budget, it is now even more consistent with GO's declared modern principles of a flexible approach to pension saving and retirement.
However, for the avoidance of doubt and for peace of mind, always take personal and regulated advice that you trust, and this is chapter and verse on recycling. Bear in mind too, that as part of growing your retirement income, if you want to subsequently refer to a year's unused pension allowance, you have to have a pension established in that tax year. It might be that you set one up with a small payment - but you'll have at least done it.
I'm acutely aware of not stepping over the line into offering advice so I offer that as generic, non specific information. Sorry for being opaque and I sense you have one eye on the calendar. Message me and I can probably help you a little more. I'm working this weekend and my number can be found indirectly elsewhere in this thread.
RPSM04104900 - Technical Pages: Taxation: Unauthorised Payments: Recycling of pension commencement lump sums: Contents
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LTA % Used Calculation from EQUINITI
Al - superb posts as always!
Learned a lot from this particular LTA discussion but still not sure of how AFPS 05 LTA % used calculations are done by Xafinity and now EQUINITI ( not the preserved pension x 20 + .tax free lump sum ..bit, but how they derive the "% LTA used" figure).
Having retired after 25 yrs, OF5, AFPS 75 transition to 05 , I have received EDP statements since 2008 stating my Standard LTA used = 91.32%. This figure has not changed even though the value for LTA has been chipped away from £1.8M down to £1.25M. Surely a LTA USED % figure would change as the LTA figure was varied? I phoned them for clarification a year or so ago when the protection debate heated up and they wrote back confirming that the LTA I have used is 91.32% and this is what is in their records.
Apart from in not changing with a reducing LTA (not complaining) but this seems far too high a % figure for an OF5 retiree- salary and therefore pension ain't anywhere near 2* levels - isn't it at * rank when LTA maxing out is an issue?
91.32% is too close to LTA allowance allowed before tax when receiving second career pension contributions from generous employer - a point you have stressed to forum many times.
Question : is this 91.32% a figure realistic for "LTA used" after 24 yrs service, finish as OF5, AFPS 05? Seems too high.
Thanks Al
Learned a lot from this particular LTA discussion but still not sure of how AFPS 05 LTA % used calculations are done by Xafinity and now EQUINITI ( not the preserved pension x 20 + .tax free lump sum ..bit, but how they derive the "% LTA used" figure).
Having retired after 25 yrs, OF5, AFPS 75 transition to 05 , I have received EDP statements since 2008 stating my Standard LTA used = 91.32%. This figure has not changed even though the value for LTA has been chipped away from £1.8M down to £1.25M. Surely a LTA USED % figure would change as the LTA figure was varied? I phoned them for clarification a year or so ago when the protection debate heated up and they wrote back confirming that the LTA I have used is 91.32% and this is what is in their records.
Apart from in not changing with a reducing LTA (not complaining) but this seems far too high a % figure for an OF5 retiree- salary and therefore pension ain't anywhere near 2* levels - isn't it at * rank when LTA maxing out is an issue?
91.32% is too close to LTA allowance allowed before tax when receiving second career pension contributions from generous employer - a point you have stressed to forum many times.
Question : is this 91.32% a figure realistic for "LTA used" after 24 yrs service, finish as OF5, AFPS 05? Seems too high.
Thanks Al
