Originally Posted by
SirToppamHat
Well having spent the evening working through the figures various and based on the advice info above (gratefully received) I reckon that during the FY 22/23 I will be looking at a tax bill of just over £26K (based on current figures). Calculations are simplified by being on the AFPS 75 only, and I used the 16x change in value to get to the overall benefit for each year, allowing me to reveal the approximate available allowance from each of the previous 3 years (40,000 - (change x 16)) to offset the increase during the 'killer year'. Without the ability to offset, I would have been facing a bill more like £59K.
Of course, we have yet to see anything anything firmer than blancmange regarding McLeod; my understanding is that the sunset date for other schemes is Mar 22. I take this to mean that wef Apr 22, we will all be forced onto an inferior scheme (irrespective of age).
Correct, everyone will be moved onto a new scheme (AFPS22) from Apr 22 but you should also have reserved rights from whatever schemes you were in previously. If you stayed on AFPS75 then I am not sure McLeod will affect you other than in removing the option to stay on your existing scheme in Apr 22. I think the consultation has now closed but you do not need to be a cynic to appreciate that the resulting HMT policy decision is unlikely to be beneficial to all concerned.
On tax bills, it won't just be £26K. Assuming you put your self-assessment in on time, you will indeed have that added to the bill, which will need to be paid by 31 Jan. Unfortunately, because of the size of the bill you will also be asked for a Payment on Account of a further £13K on 31 Jan and the same amount on 31 Jul, making it a £52K in-year hit from your take-home pay. That is because the tax system sees you have effectively underpaid by £26K (which you therefore owe immediately) and assumes you will owe the same amount when you submit your SAA at the end of the year. Rather than you owing them the money (which is the equivalent of a £26K loan accrued over the year), they collect it up front but generously allow you a few months to scrape the cash together in 2 instalments. You might be able to secure a personal loan to fix the problem in the short term but there are no guarantees that you will not run into the same problem in future years - hopefully this does not occur during the term of that first loan. The effect is still the same on your pocket.
The 'cash now' problem is why many people end up using Scheme Pays. The immediate advantage is that AFPS(whatever) pays the tax bill direct from your pension pot, which has the happy knock-on effect of removing the associated Payment on Account. If you have not submitted your SAA yet, try adding an arbitrary excess Pension Input Amount of eg £40K, see what bill it generates, and then go back and select Scheme Pays - you should see your bill zeroed with no future payments demanded. Whilst Scheme Pays will reduce your immediate tax bill it can only be achieved by reducing your pension benefits, though this must be a fair reduction. It will also be a permanent effect, much like commutation, and will affect you for life. There may be advantages if you run into the Lifetime Allowance limit as it could possibly reduce taxes on your pension when it becomes payable.
In all the above it is worth remembering, as LJ posted on 28 Dec, that even if you breach some of the tax limits you will eventually be better off than someone who does not.
Lastly, however marvellous the PPrune Crewroom is, where pensions are concerned there is no substitute for expert professional advice!
- Join the Forces Pension Society
- Find an IFA who understands the AFPS