Military pension and gratuity to be taxed!
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!
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!
Last edited by Grimweasel; 14th Jul 2010 at 22:03.
Thread Starter
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.
I was hoping to take a massive commuted lump sum in a few years time...I still hope to do so.
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This is all to do with the Annual Allowance
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 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)
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 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)
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.
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.
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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).
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).
Grimweasel,
I'm assuming the words in italics were your words and not those of the AFFPA?
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
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!! ;-)
Maybe a call to the tax office may clear this up. Just glad I stayed on the old scheme if that is the case!! ;-)
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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!
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!
