Originally Posted by
Melchett01
Not sure about that. The tax charge is related to input amounts not tax relief. As we don’t receive tax relief on our pensions I think this affects private sector and SIPPs more. Where it will create an issue is the perceived increase in pensions apartheid between public and private sector, which will leave your average Torygraph reader frothing at the mouth more than usual.
My understanding of the current situation is that we receive relief at 40% for notional pension inputs of up to £40k pa. Logic suggests this is how the Treasury views it because if you exceed the £40k then you incur a tax charge on your surplus inputs, as you have recently discovered with your letter. If the relief rate is halved then I assume that all higher-rate taxpaying service personnel are at risk of tax charges of 20% on their notional input amounts up to the allowance limit, and charges at their marginal tax rate beyond it. (Disclaimer: I’m not an accountant, seek professional advice!) By the way, I think it helps to understand Scheme Pays as an advance, not a loan; if you use it you will have less in your ‘pot’ and so get less pension. I’d still use it, though, as my need for cash is much greater now than it will be in retirement.
The following is aimed at downsizer but hopefully useful to others:
The pension tax charge under discussion on this thread is related to the amount input to a pension each year. As we don’t actually input anything, the Government calculates the notional pension ‘pot’ which a civilian would need to purchase an equivalent pension and raises a charge at your marginal tax rate if the increase in that ‘pot’ during one tax year exceeds the annual allowance. So the calculated ‘input amount’ is not directly related to your current salary. Promotions for people with AFPS75 credit cause large spikes in their future pension benefits when they reach two years in rank, which are turned into large notional annual inputs and attract tax charges.
This is not a change to your pension but a change to the tax regime (which actually dates back several years, but is only now dawning on many). High middle income earners are *squarely* in the taxman’s sights and the reasons why we don’t hear so much about these charges in the private sector are that 1) their pensions are generally rubbish by comparison, or 2) they’ve chosen to take more of their compensation as salary or other benefits (in which case they pay higher- or even top-rate income tax on it).
I think we service personnel (and judges and doctors) have a legitimate grievance in that we cannot choose to take salary instead of pension growth, so are effectively forced into taking interest-bearing ‘Scheme Pays’ advances against our future pension benefits to pay the tax bills. But we are in a weak position politically: people only get a tax charge because they are better off than people who don’t get a tax charge, and they can never be left worse off for it. That means that sympathy is likely to be in short supply in the Treasury and getting ‘Scheme Pays’ made interest-free may be about the best we can hope for - pure speculation on my part.