Military pension and gratuity to be taxed!

[Training Risky]

Just heard on the grapevine at a secret headquarters in Bucks that the military pension and gratuity is going to be taxed at 40% as of 1 Apr 11.

40% because in the year you receive it, you will have earned enough to be in the higher tax bracket.

You heard it here first!:mad::ugh::*

[WhoAreYa]

Pension has always been taxed mate. As to the level it depends on your exit date and earnings that financial year.

[BEagle]

Which is why you should arrange your exit date so that it falls after whatever pay rises have been agreed but before you've earned enough in the financial year to be in the 40% bracket.....:rolleyes:

Tactical PVR'-ing - that's what I did!

[Yeller_Gait]

Gratuity was always tax free though .... wasn't it?

With a bit of luck the second, under AFPS 05 will still be tax free too, but got a few years to wait for that.

Y_G

[Dengue_Dude]

The Gratuity was always tax free. There was an agreement with IRS that it didn't push the incumbent into the supertax bracket as it was not salary.

The Pension (the monthly bit) has always been taxable (well in my lifetime anyway).

[Union Jack]

The Gratuity was always tax free......

..... and I know that it sounds unbelievable in this day and age, but I recall being told way back that the terminal grant was intended to enable one to buy a house on retirement after a lifetime of Service accommodation!:uhoh:

Jack

[TheSmiter]

the military pension and gratuity is going to be taxed at 40% as of 1 Apr 11.



Risky - I know this is a rumour network and all that, but slipping in nuggets like this, without any granularity (as the grown ups are starting to say), is pretty serious.

Pay and pensions are increasingly (if not exclusively) used as career decision making tools. I'm probably not alone in having stayed the course in this excuse of an Armed Force based on the benefits I expected to receive at the end of my full career. If they move these particular goalposts now, I predict big trouble ahead.

And yes, I know the country is in financial doo-doo and yes I know my pension benefits are generous compared to other sectors of the population, but I planned my retirement on the figures I was given. Does that count for nothing any more?

[cazatou]

Just to remind people that HMG reserves the right to tax "Government Pensions" in the UK no matter where the recipient resides on this Planet. You can retire to an Island in the sun but your Service Pension will be taxed in UK.

[glad rag]

Oh yes, cazatou, it's almost like they DARE you to enjoy your retirement! :yuk::yuk:

[cazatou]

glad rag

At least I did not let on that if you are resident overseas then you are no longer
liable for Reserve Service.

Oops :rolleyes:

[dum_my]

Just to remind people that HMG reserves the right to tax "Government Pensions" in the UK no matter where the recipient resides on this Planet. You can retire to an Island in the sun but your Service Pension will be taxed in UK.
Usually true, but not always.
It depends on the wording of the Double Taxation agreement between the UK and the particular foreign country you move to. It may then be possible to receive the Service Pension without being taxed by the UK. In the country I now live in, I would receive my pension free of UK tax if I (a) have a permanent residence permit, and (b) become a citizen of the foreign country.

[Shack37]

Dum_my said
In the country I now live in, I would receive a Service Pension free of UK tax if I (a) have a permanent residence permit, and (b) become a citizen of the foreign country.


True but your pension would/could be tnen taxed in your country of residence/citizenship. Shouldn't that be A or B?

[tarantonight]

Same rumour hit the Old Bill recently re our lump sum at 30 years service.

Seems that's all it was, we are likely to be paying higher Pension Contributions by 2014, up to 14 or 15% as opposed to 11% now.

Not such a bad hit to take if you only have a few years to run - not so good if just joined!

TN.

[larssnowpharter]

Quote:
Just to remind people that HMG reserves the right to tax "Government Pensions" in the UK no matter where the recipient resides on this Planet. You can retire to an Island in the sun but your Service Pension will be taxed in UK.

Usually true, but not always.
It depends on the wording of the Double Taxation agreement between the UK and the particular foreign country you move to. It may then be possible to receive the Service Pension without being taxed by the UK. In the country I now live in, I would receive my pension free of UK tax if I (a) have a permanent residence permit, and (b) become a citizen of the foreign country.



No need to become a citizen. You do need to:

1. Become a resident. Various countries have special retirement visas.
2. Fight with Inland Revenue.

It CAN be done. :ok:

[Pontius Navigator]

Which is why you should arrange your exit date so that it falls after whatever pay rises have been agreed but before you've earned enough in the financial year to be in the 40% bracket.....:rolleyes:

Tactical PVR'-ing - that's what I did!

There is more to this than minimizing taxable pay in your final year. You future pensions uplift depends on the time at which you retire. I am not absolutely sure, and can't be bothered on this hot evening with a cool tinny beckoning to check but:

Assume you retired in the first days of April, you would benefit from the in-year payrise and your pay for that year, assuming pension was your only income that year, would be taxed at 20% after tax relief. The following April your pension would be increased by the relevant price index increase from the previous September. If your pension was £20k and the price index was 3% your maximum pension uplift would be £600 giving £20,600 the following year.

OTOH if you retired at the end of September that year your pension would still be paid at the rate of £20k but the following April it would receive only a £300 uplift. Your pension the following year would be £20,300.

Assuming the uplift remained at a constant 3%, after 10 years your April retiree would be on a pension of £27,684 but the person who retired 6 months later would receive only £27,281. For someone retiring at the begining of March the pension would only be £26,945. This disparity is one of the issues that the Forces Pension Society has been tackling.

[NutherA2]

and I know that it sounds unbelievable in this day and age, but I recall being told way back that the terminal grant was intended to enable one to buy a house on retirement after a lifetime of Service accommodation!http://images.ibsrv.net/ibsrv/res/src:www.pprune.org/get/images/smilies/worry.gif
True,that's why the gratuity on completing a 12 year Direct Commission B was set as high as £12,000!!!:ooh:

[Pontius Navigator]

DEC B was £4,000 in 1961.

[Mike7777777]

Average UK house in 1961 was ....

[LFFC]

Don't take my word for it, but I'm fairly confident that the gratuity at retirement will not be taxed. I understand that it's seen as being a "pension commencement lump sum" under the new rules for pensions that came into force on A-Day (6 Apr 2006). Here's a good website to read the details:

A-Day: Changes in detail, Defined Benefit Schemes - Active Members (http://www.mycompanypension.co.uk/A-Day-Changes-in-Detail-Active-Members-DB#tax free cash)

The bottom line is that, unless the government changes those rules again - for everyone in the country - I don't see how they can tax pension gratuities. Fingers crossed!:hmm:

However, what's far more at risk is the Early Departure Payment for those who leave before age 55 on AFPS05. It's not a pension, so I guess it could be taxed quite easily. :ouch:

[PlasticCabDriver]

Average UK house in 1961 was ....

In 1960 it was about £2500, which is about £43k in todays money, whereas the average house price now is....

[Grimweasel]

Interestingly I just spoke with AFFPA (JPAC Option 1, Option 3) this morning and they said that the AFPS75 was considered an immediate pension whereas the AFPS05 was NOT...this means that Early Departure Payments could be liable to tax under 'weasely' changes in the pension rules/tax laws by the Government? Not entirely sure but could be worrying for all those on AFPS05 possibly?

Edit - All cleared up - it was a data entry error - I am still on AFPS 75 and was not forcibly transferred on service swap! Phew!

[Training Risky]

Sorry Smiter, I was just repeating what I heard word for word from a 'chap in the mess called Bernard'.

I was hoping to take a massive commuted lump sum in a few years time...I still hope to do so.:uhoh:

[Exiled]

One of the things which was not picked up by most from the budget is the possibility that the Annual Allowance limits could be altered. The charge of a breach of the limits is 40%

You work out the Annual Allowance by multiplying pension at the start of the year by 10 and adding the gratuity (3 times pension), do the same at the end of the year and take one from the other and you have it.

This year the limit is £255K so no problem to mortals, however, consider the implications of the following information taken from the Scottish Life website:

The June 2010 Budget (http://www.scottishlife.co.uk/scotlife/Web/Site/Adviser/TechnicalCentralArea/InformationGuidance/ActsBillsandBudgets/June_2010_Budget.asp) said the Government was considering reducing the amount of the annual allowance from 6 April 2011 to a figure of between £30,000 and £45,000. Members are subject to a 40% tax charge on the amount of any contribution (both member, contributions on behalf of the member and employer) paid in excess of the annual allowance each year. This also applies to any benefit increase under a defined benefit or cash balance scheme over the annual allowance. If an annual allowance charge is due this will be dealt with through the member's tax return.

(My underline and bold)

[Melchett01]

Exiled,

Unless I'm mistaken, that is the limit for contributions you can make each year into your pension scheme rather than the limits on what you can get out of it. If you are lucky enough to be able to put 255K into your pension, and then claim the tax relief back on it, it means HMRC loses out on rather a lot of cash, whereas the tax relief on 35-40k is far less.

[Exiled]

Melchett

You are right. But this is the source of the rumour that started the thread. The charge on the increase in pension value would be in-year.

As someone has already said, pensions are taxed at the same rate as income and, as far as I am aware, there is no plan to tax lump sums (nor is there likely to be).

[chinook240]

Grimweasel,

Interestingly I just spoke with AFFPA (JPAC Option 1, Option 3) this morning and they said that the AFPS75 was considered an immediate pension whereas the AFPS05 was NOT...this means that Early Departure Payments could be liable to tax under 'weasely' changes in the pension rules/tax laws by the Government

I'm assuming the words in italics were your words and not those of the AFFPA?

[Grimweasel]

Chinook - she was unsure but said that it was not an immediate pension because if you leave prior to 55 years old (AFPS05), the lump sum would be considered an Early Departure Payment - obviously she was not a tax expert but thought it plausible that it may not fall under the same legislation etc as the AFPS75 commutable sum that is considered a full pension payement.

Maybe a call to the tax office may clear this up. Just glad I stayed on the old scheme if that is the case!! ;-)

[mil69]

Have a chat with these people http://www.forcespensionsociety.org. I attended one of their briefings a couple of years ago, good advice. One of the big points which they harp on about is everyone is an individual when it comes to pensions

I now live abroad but I still pay 7% tax to the UK, my choice. I also started my own business but the big thing here is pension splitting/sharing. With me now working the system in my favour for once, my tax bill last year was less then my last monthly tax deduction in the forces!:D