Military Pension Tax Exemption! [Archive]

airborne_artist

26th Mar 2009, 10:27

Why should a government-backed pension be tax free? What next, tax-free pensions for civvy employees of MoD, tax-free pensions for jobsworths in the local council?

If you don't pay tax on your income, then those who do pay tax just have to pay more to pick up your tab.

I'm all for good salaries, decent housing and a lot less stretch, but tax-free pensions, why?

Chugalug2

26th Mar 2009, 10:36

I have to agree with airborne artist on this one. Mind you in my case it's merely sour grapes; 13.5 years service, pvr'd, = no military pension whatsoever! You young'uns have no idea, why in my day....

cazatou

26th Mar 2009, 10:45

Snowflakes and that hot place down below spring to mind.

HMG reserves the right to tax "Government Pensions" in the UK irrespective of where the recipient resides on this Planet. My Military Pension, my Wife's Teachers Pension and her State Pension are all taxed in UK although we are Resident in France.

trap one

26th Mar 2009, 10:50

A-A you ask why should Mil pensions be tax free, why not say I. Of course fully expect it to go the same way as the petition for Mil Hospitals, Tax free pay whilst deployed in Op Area etc.

Bob Viking

26th Mar 2009, 10:59

To be fair to cazatou, I'm not sure he was actually suggesting it should be changed he was merely stating a fact.
I could be wrong of course but I wouldn't necessarily be so quick to ridicule the man!
BV:=

Molemot

26th Mar 2009, 11:04

Government pensions..such as military and civil service..are not liable to French taxation, be they of French or any other origin. The UK Old Age Pension is not considered as a Government pension and is thus liable to tax in France.

anotherthing

26th Mar 2009, 12:19

cazatou

26th Mar 2009, 12:41

Bob Viking

Thankyou, merely pointing out that HMG would forfeit a very large sum indeed if it acceeded to the petition.

Molemot

Thanks, I will follow that up. Inland revenue would never make such a mistake - would they?

flipster

26th Mar 2009, 12:50

Nice idea but not a hope!

roony

26th Mar 2009, 12:52

What an utterly pointless crusade. I would benefit from this, but fail to see any valid argument why it is justified. Why stop at demanding a tax-free pension, let’s have free lager, and hover boots, and unlimited use of public bouncy castles.

To be honest, I’ll just be grateful if the pension is still there at all when I leave.

c130jbloke

26th Mar 2009, 12:53

I second flip on this - it has not got a hope.

Len Ganley

26th Mar 2009, 13:24

Can't see this happening, much as I would like it to.

If they were to introduce such a scheme the protests from other public servants, police, fire, nursing, etc. would be interesting to say the least.

In an ideal world, no-one should pay tax on a pension but this is far from an ideal world. You either tax all pensions or none of them - and I can't see any government giving away that sort of revenue.

anotherthing

26th Mar 2009, 13:32

Len,

Why do you say in an ideal world no one should pay tax on a pension?

Pension contributions are made pre tax, which is why pensions are taxed.

If they were not taxed it would mean that those better off, with more disposable income, would dodge tax by upping their contribution amounts. This would build an even bigger divide between the lower and higher paid people and is just not workable.

In an dream-on ideal world, we wouldn't pay any taxes, or I wouldn't have to pay 40% just because I have worked hard to earn a good wage...

In a more achievable ideal world the Armed Forces, especially the lower ranks, would get paid more in the first place (and nurses etc)...

c130jbloke

26th Mar 2009, 13:49

Why do you say in an ideal world no one should pay tax on a pension?

Errrr hhhhuuuummmm:eek:

I wouldn't have to pay 40% just because I have worked hard to earn a good wage...

Good for you fella !!!!

And this pig is still never gonna fly ;)

Pontius Navigator

26th Mar 2009, 15:41

It may not fly but it is not quite as far off the wall as you might think.

The real issue is why does the treasury pay with one hand and claw back with the other? More logical would be to cut the pension by whatever - 20%, 30% or so and make it tax free.

The state pension is not taxed. They pay out and that is that. What they do do is abate your personal allowance. It might have the same effect but in reality the cash flow is only one way.

Taxing a Government pension makes no sense whatever.

Winch-control

26th Mar 2009, 15:57

Yep...err thats the government for you! When did this Nulabour ever make sense?

Cornerstone958

26th Mar 2009, 16:06

I agree that there is no chance.
I have however signed up if only to add my 'Wooden Spoon' to the pot.
You may be supprised to learn (or maybe not) that the average civvy still thinks that the pension is Tax Free and you all live in rent free accomodation. With free utilities and no Council Tax!
This discussion was going on when I left some 26 years ago. Some things never change.
Stay safe out there.
CS

Grabbers

26th Mar 2009, 17:40

What about a petition for the hover boots? Like the sound of them. Whoooooosh.

Pontius Navigator

26th Mar 2009, 18:37

How much do you contribute out of your salary for your pension i.e. after gross pay on your payslip, what percentage is shown as pension contribution?

Are military pensions still based on final salary i.e. are they defined benefits pensions? (Commuted mine years ago so don't know).

Slight misconception here.

In terms of pension contribution from gross pay the answer is NIL and the pension is non-contributory. Well that is true to a point.

However the AFPRB, when calculating Comparable Pay reduced the pay comparsion by 11% to allow for pension contribution. In other words if your actual pay was £10000 the AFPRB had calculated a comparator value of £11236.

Many moons ago they decided that that figure was too high and over 2 successive pay rounds reduced it from 11% to 9%. Ignoring inflation rises this meant your £10000 increased to £10113 in year one and £10225 in year two.

Then the actual pension is based on the salary in receipt at the time of retirement. If you retire in March your pension will be lower than a colleague who retires in April. Then there is a second kicker and that is how they proportion subsequent pensions inceases. If you retire in October you get only half theincrease the next year than your colleague who retired in April. Thereafter you both get the same percentage uplift but your base will be lower than his.

Molemot

26th Mar 2009, 18:49

Agree totally that taxing a government pension is farcical. Simplest thing would be to just pay a lower sum taxfree....and avoid all the idiotic costs involved in calculating and deducting the tax. In the same vein, I was astounded by all the fuss surrounding the taxing of the Civil List...why should Auntie Betty pay tax? She either needs £X to run things or she doesn't...taxing £X just results in her not having sufficient funds, whereupon the Civil List payments have to be increased so that available funds remain the same as before. A pointless paper exercise. If she doesn't need £X to operate, just reduce the sum paid. It's all taxpayer funded government money anyway.

mabmac

27th Mar 2009, 00:55

Pontius Navigator - I couldn't agree more with the sentiments of the last paragraph of your post (#21). I retired in May 1996 and decided not to take any life commutation for my pre-1978 service but I did take the maximum resettlement commutation. I have therefore been receiving a fixed, lower amount for the last 13 years. I am 55 in a week and requested a forecast of what my pension would be when the commutation value is restored and the past annual increases are applied. Because I retired in May the first annual percentage increase is only about 11/12ths of that years value. It is staggering how much difference this lower first-year value makes over the life of the pension as, of course, it is compounded by every subsequent annual increase. It would be considerably worse had I retired later in the year.

This abatement of the first year's increase has always seemed unfair and illogical to me as the pay rate is an annual one. Thus a person retiring at any time within a financial year will have the same final pay as anyone else with the same seniority. The AFPRB decide on the increase for the following year based on that single pay rate. It's not as if everyone's pay increased monthly (or even daily). I can't for the life of me think why anybody should think it fair to abate the first year's percentage increase of the pension depending on how far into the year it is that one retires. My simple mind says single annual pay rate for all throughout the year should mean single annual increase for all! Can any PPruners explain the rationale?

alnic

27th Mar 2009, 01:03

Poo!!! I never realised that about retiring in October hurting my final pension at 55. It just confirms my thoughts of the UK Government....and they are unprintable...............:mad:

FFP

27th Mar 2009, 04:21

So, retire in April ? Is that the concensus ?

navibrator

27th Mar 2009, 06:17

What a ridiculous petition. Of course all should pay tax on income and we, in the military, are no different. The only thing which is wrong is the tax is removed at source so you only get a net payment. This should be optional so those living abroad can pay tax either in the UK or abroad as you do with other income. This is a sure quick way to lose what public support we may have.

Pontius Navigator

27th Mar 2009, 06:38

FFP,

Indeed it is. I had a date in late April but, possibly foolishly, extended to October.

The actual effect does depend on the percentage uplift, ie inflation, in your retirement year. In my case, not that long after mabmac, inflation, not thanks to the Odious one, was low.

But my ex-boss, when I first aproaching retirement, said how much he had suffered losing some 7%.

To bring the argument up to date, in September last year the RPI inflation ws about 5%. Someone who retired with a £10k in April last year will see their pension rise to £10.5k this April and assuming 3% RPI this September to £10.815k the following year. Snooks, retiring in March this year will receive the same £10k until the end on March. Then in April his pension will be uplifted by, say, 1/12th of 5% to £10041 and £10343 the following year.

Can you spot the double whammy? The April man benefits from the previous year's pay increase for a couple of weeks and then the RPI uplift on the whole of that amount forever. The March man benefits from the whole year of higher pay, as the value of his pay is eroded by inflation, and is then kicked in the slats from a significantly lower pension ever after.

Pontius Navigator

27th Mar 2009, 06:49

I have put this as a separate post so as not to confuse with the previous one. The CS has several schemes, a bit like the Services have now.

One thing they can do is 'buy' extra years. A full career CS, fairly rare beast, will get a maximum pension of 40/80th (in the Classic scheme) but could get that after 30 years by buying in 10 years.

Then they are on a final salary pension. Not, as the military, based on pay in receipt on retirement, but a far more interesting formula. All I will quote is what I have been told.

The final year's salary is based on the sum or the best 4 periods of 91 days over the previous 3 years.

Now in military terms that would be the equivalent of having your October retirement pension calculated on 6 months of last year's pay and 6 months of this. I think that would be fairer but it would mean everyone would get a lower pension. That was the route that the Officers' Pension Society was pushing.

Back on the CS route, if you were in receipt of substitution pay or pensionable allowances that gave you a significant pay uplift 3 years before retirement then that would be taken into account. Substitution pay in the military would have been ignored!

There are other little nest provisions too :)

BEagle

27th Mar 2009, 06:54

Well, I did some careful planning and selected the optimum time to PVR....

However, those nice people at Paymaster seem to have given me an 82% pension increase this month....... I suppose I'd better try to ring and find out why.

Pontius Navigator

27th Mar 2009, 07:03

BEagle, happy birthday.

One presumes you have had your resettlement comutation restored?

Did the Paymaster include a freephone telephone number and a promise to refund your accountant's expenses for checking your pension entitlement?

Thought not.:rolleyes:

lastgasp

27th Mar 2009, 07:40

Only just noticed this thread.

Fl. Lt Mac (an early post) is missing the point, surely. It is one of the international conventions on tax that it is paid on income in the country where that income arises, not in the country where the recipient happens to be. His UK pension is income and is thus taxed in the UK, regardless of the fact that he is resident in France. The same situation will apply to a retired Frenchman who lives in the UK. I have certain income that arises in Australia, a country I have never even visited, but nevertheless it is taxed in Australia, because that is where the income arises.

The UK state "pension" on the other hand can be transferred to certain other countries where there are reciprocal arrangements, because it is a "benefit" rather than taxable income.

What really interests me is the assertion by Molemot, also an early post, that military pensions are tax free in France, regardless of where they arise. I relly would appreciate him supplying chapter and verse on that in case I and others are missing out on something. It is absolute news to me. I suppose that it is possible that French mil pensions are tax free in France, although I had not heard of it, - but UK mil pensions? Molemot, tell us more.

BEagle

27th Mar 2009, 07:46

Lord knows, PN......

If it was a double payment, I could understand the cock-up, perhaps.

I don't think I applied for resettlement commutation, just took the lump sum and maximum pension of the various options available in 2003.

However, I had a substantial change to my Tax Code for 2008/9 notified a couple of weeks ago; perhaps it's something to do with that?

Anyway, it'll go into a savings account and I'll wait for them to contact me if they care to explain the reason or whether they expect any of it back.

Blacksheep

27th Mar 2009, 08:01

Notes on a couple of statements above:

1. Although leaving after 13.5 years sacrifices the lifetime pension, at age 60, for those who left after 1974, the "Preserved Pension Rights" kick in and you can claim a preserved pension. Note that you have to claim it, they won't contact you. Also it isn't much; mine is £266 after tax, but every bit helps.
2. Pension contributions are not untaxed; that is to say, one doesn't pay tax on gross salary minus pension contributions. Tax is paid on everything after deduction of allowances and NI contributions are taken on the gross minus allowances too - not the balance after taxation. Indeed, for those who pay into private insurance based schemes, contributions (using money on which income tax has already been paid) may attract an extra tax deduction.

So, you pay tax on what you put in and you pay tax again on what you take out.

Pontius Navigator

27th Mar 2009, 08:19

for those who pay into private insurance based schemes, contributions (using money on which income tax has already been paid) may attract an extra tax deduction.

So, you pay tax on what you put in and you pay tax again on what you take out.

So you are taxed on what you pay in but then claim that tax back.

For instance if you pay in a notional £100 per month, as a 40% tax payer, the provider actually only takes £60.

There is a possibility (well it used to be) for you to pay in £6000 in March, in anticipation of your gratuity in April and your PP would credit your pot with £10000.

cazatou

27th Mar 2009, 08:54

lastgasp

UK Government Pensions are, under the taxation treaty between France and UK, taxed in UK and are therefore not taxable in France.

Len Ganley

27th Mar 2009, 09:59

anotherthing

Why do you say in an ideal world no one should pay tax on a pension?

In an dream-on ideal world, we wouldn't pay any taxes

Answered your own question haven't you?

IF you can get your thoughts away from the corporate bosses who retire with a pension fund equivalent to the annual budget of a small country and consider a 'normal' person who has worked and invested enough to give them a modest income in retirement, can you honestly say there is no merit in letting them enjoy that income tax-free?

If you want to put an fairly high upper limit on the tax-free amount to clobber the high-earners then fine, but always remember that not everyone retires on a 'Goodwin'.

Yeller_Gait

27th Mar 2009, 10:34

Last Gasp

I have certain income that arises in Australia, a country I have never even visited, but nevertheless it is taxed in Australia, because that is where the income arises.

It is a sad fact, for those of us living in Aus at least, that any income from anywhere in the world, is taxable by the Aus Tax Office. Yes we can get offsets under double-taxation treaties etc, but ultimately we are liable to pay the ATO tax on our UK mil pensions. It would be great if we could just pay UK income tax on our pensions and not involve the ATO.

Y_G

regulator2sq

25th Jun 2023, 15:49

Umm doesn’t length of service also contributes to ŷour pension. It is not based on whole years, but months. So if you joined the pension scheme (or became eligible to be more accurate) and both joined on September 12th 1973, but your comrade leaves in April 1999 and you leave in the following October. Then at the first revaluation your comrade will have 11/12 indexation applied and you will have 5/12th. But you will have a longer length of service, which in most years, for most servicemen and women, will mean that you have a higher base pension. So you will normally be better off for the rest of your life. Your argument if followed through would result in officers receiving different rates of pay depending on the month they joined, and subsequently different rates of pension. Or we could go the whole hog and do it by days of service. Really there has to some simplification to create a practical process and I don’t think any body ends up worse of as a consequence.