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The Pensions Bill Amendments 2014

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The Pensions Bill Amendments 2014

Old 22nd Jul 2014, 13:05
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Al R

I am unsure if this proposed new limit of £10,000 for pension contributions will apply to my colleagues and I who left the military some time ago and are pursuing second careers with Defined Contribution (DC) pension schemes. I understood it was designed to stop people churning the 25% tax free lump from a DC scheme payout straight back into a new pension to attract another lump of tax relief. I understood that if you had not taken any benefits out of the DC pension, you would still have the £40,000 annual limit on contributions (as long as you stay within the LTA of £1.25 million).

Do you have a source document for this £10,000 limit or do we have to wait for the Autumn statement from The Chancellor?

Anyway, thanks as always for the excellent advice
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Old 22nd Jul 2014, 14:12
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Fod,

No, if you're growing wealth still, it won't - it applies just to those taking it out, or drawing down - just retirees. If you are still growing it, it might be worth checking out the legislation which is going to involve establishing a number of small pots.

News is still trickling out about the changes. For instance and on another note, the incremental increases given to retirees deferring state pension payments will be almost halved to 5.5% for anyone reaching state pension age after 2016.

The new rate will be 1/9th of 1% for each week the pension is not claimed - in other words, a 1% increase for every nine weeks of deferral or just under 6% increase for each year. Therefore, if you defer for one year after 2016, you'll have to live 19 years to benefit from the decision (compared to 10 years, currently). It still might be appealing to some who are in good health, earning well etc.

More to come out I'm sure, in the meantime here you go..

https://www.gov.uk/government/upload...nse_online.pdf

http://www.parliament.uk/documents/c...y-Pensions.pdf
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Old 22nd Jul 2014, 18:47
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Thanks again for the info Al,

It looks like Financial Advisers are going to be very busy for the next couple of years with all these huge changes. As yet, it doesn't look as if if many pension providers have got a developed strategy. Mind you, when I spoke to my MP about the implications of some of the changes, her eyes glazed over and she referred me to the Pensions Minister!!
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Old 24th Jul 2014, 08:58
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Steve Webb is ok, he knows what he's talking about.

I've always suggested that the tweaks around the edges of AFPS 15 are red herrings, that it is only going to be affordable or viable as long as the Discount Rate (DR) stays within set parameters. The White Paper declared that new public sector schemes (ie; AFPS15) would be subject to change or modification if the cost cap was breached. And that's linked to the DR. If costs move below or above the cap, scheme benefits may be amended to alter the overall cost of the scheme or the level of member contributions may be altered.

AFPS is an unfunded scheme which means the money is found behind the Treasury sofa on a rolling yearly basis. Some funded DB/FS schemes though, need to look at reducing the shortfall in other ways if the DR falls and the cap is breached. The Civil Service scheme is a funded pension scheme and it looks like it has declared a cut in its DR and a breach of cost cap. The cost cap for the CS scheme was set at 18.5% and had a margin of +/- 2%.

It has crept up to 21.1% which means the money has to be found from somewhere other than the government. The solution? Well, it looks like members have got to put more money into their notional pots by increasing contributions. Hands up if you've ever had an endowment red warning letter, suggesting your shortfall may be addressed, everything will be fine and you won't lose money.. if you increase your contributions. AFPS DR has yet to be declared (as far as I am aware). When it does and if the cap is breached, what then happens?

Finally, and in more good news, when I am 100, 18.3% of GDP will be spent on healthcare and wiping chicken soup from my and my cohorts slobbering jowls and when I'm 70, 33% of us (you?!) will be paying higher rate tax. The tax tail should never wag the investment dog but be aware of as many tax breaks that you can grab and think long term. If you are going to be a HR tax payer for the rest of your days, what can you do now to mitigate tax liability?

http://resources.civilservice.gov.uk...l-22072014.pdf
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Old 2nd Aug 2014, 20:15
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So, I'm in my late forties and have been drawing my mil pension for 2 yrs, simultaneously building up a (final salary) pension pot in a new job which I'd like/intend to remain in for another ~15 years - maybe as many as 20. Currently contributing £15K pa, (salary sacrifice + company contribution together totalling £8K, my voluntary contribution of £7K pa); am I 'safe' tax wise, or do I have to cut back on the voluntary contributions? Or can I increase them at will, within reason, for that matter?

Last edited by Willard Whyte; 3rd Aug 2014 at 00:07.
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Old 4th Nov 2014, 10:43
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Has QE affected your pension? Don't worry! If you're in the Bank of England pension scheme that is. Only in Britain could this happen, I admire the brazen way increases are still linked to RPI. It's a little like the unpublished and incredibly generous MEP additional pension scheme that we pay nearly £170m into each year.

Bank of England pension scheme 'unaffected by QE' | 3 November 2014 | Stock Market Wire

(I don't really love it of course, and I know this is probably better suited for Jet Blast but I have a button on my iPad that brings me straight here and there are weirdos who post there.)
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Old 4th Nov 2014, 11:03
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Willard,

I'm not sure I get your question, none of us are 'safe' tax wise these days!

But the chances are, and you probably know this, that you'll be a HR tax payer until you die. In other words, unless your mil pension is paid free of tax, you’ll pay tax on that, you'll continue to get an annual tax code and you'll continue to pay tax on any income you earn over your personal allowance (the standard personal allowance for you, for 2014/15 is £10,000). Income includes things like pensions in payment. New legislation makes it so important for so many servicemen (typically, with wives and partners who don't pay taxes) to consider building up small pots of their own as well/instead. New legislation makes passing on a defined contribution personal pension so much easier as well.
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Old 4th Nov 2014, 11:45
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I'm getting old. I forgot what I meant, and what I wrote makes no sense to me!

I think I may have been referring to this:

"Also, if you're in retirement, your annual pension contribution allowance is going to drop to £10,000 per annum, from £40,000."

Does "in retirement" refer to state pension age, or whether one is drawing a pension?

The point I'm making/question asking is that

1. I am drawing a Mil pension (i.e. in retirement, although not at state pension age)

2. Contributing >£10K per annum to the pension fund of my current job, consisting of:
a/ £4400 Salary Sacrifice
b/ £6600 Employer Contribution
c/ £5900 Voluntary Contribution

a + b are part of the final salary pension
c is a defined contribution amount, but once I retire is incorporated into the same pension pay out as a + b.

Are there any tax implications I should address before Apr '15, such as reducing my contributions to a maximum of £10K, and, if so, could/would the capped figure exclude my employers contributions?

Aware of course that I will more than likely be in the HR tax bracket when I retire, but still feel it's worth avoiding paying 40% tax (and 2% NI) on £10K+ to get to that 'happy' place to begin with!

Last edited by Willard Whyte; 4th Nov 2014 at 12:11.
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Old 4th Nov 2014, 14:40
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Neither! You could be retired and not drawing benefits from a pension. If you want a quick personal information only steer about your personal circumstances, don't hesitate to message me.

(Deep breath)

The annual allowance for pension contributions is going down to £10,000 if the saver has made use of the new pensions flexibility. To remind you, savers can access their pension funds at retirement at their marginal tax rate from next year, down from the current 55% tax. The reason it has been reduced to £10,000 has been to prevent savers recycling their tax-free lump sum and reinvesting it into a new pension to receive tax relief again, and it'll only apply if an individual accesses a defined contribution pension worth more than £10,000. Your new pension is DC by the sounds of it and you'll have more than the required £10,000.

I also mentioned non tax paying partners; they can make withdrawals from three small personal pots and unlimited small occupational pots worth less than £10,000 without being subject to the £10,000 annual allowance on further contributions. On the surface of it, why wouldn't anyone without existing pension provision want to benefit from 20% uplift on contributions of up to £2,880 per annum without being taxed on the flipside? Again, on the surface of it, that might appeal to higher rate taxpayers without the need for capital sums, who have lots of savings in cash accounts.

Those who are currently in flexible drawdown with no annual allowance, who have had to secure a £20,000 a year minimum income, will also be subject to the new £10,000 limit in April 2015. That is going to affect anyone from the rank of long serving NCO upwards. One anomaly that could remain (and the Treasury shows no signs of stamping down on it) is that despite the £10,000 annual allowance being introduced, a non tax paying individual over 55 and already taking benefits from a personal pension, can invest the maximum contribution of £2,880 and still receive tax relief at source, grossing the contribution up to £3,600.

Then, and this is the nice bit, after taking all the benefits under the new flexible drawdown rules each year as a non-taxpayer, they can then reinvest £2,880 in the next tax year, and would benefit from £720 tax relief. This is why the (usually) husband, wage earning partner saving blindly in his name isn't always the best thing. Bequeathing an untouched personal pension too, dying before age 75 has also become a far more attractive proposition. Not for the person dying of course. As always, that's the theory.. it may not be the best thing for everyone and their circumstances.
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