Armed Forces pension
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chinny crewman, cheers for that. whilst i know you should'nt base financial planning on payments that havent been made yet and could be changed, i was rather hoping to increase the value of the pension/gratuity by slashing a bulk off the mortgage! fingers crossed that the gratuity remains a tax free payment!
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Quazzi,
I don't think the government will single out the military by taxing gratuities as such, but it's possible that they may start taxing all pension lump sum payments. If they did that for the whole country, then they could easily justify taxing military gratuities. However, that would be a very bold move and another great disincentive to making pension payments; so I don't think it's going to happen.
What's far more likely is another reduction in pension contributions - down to possibly £30,000 a year - so that rich contributors can benefit far less. That would catch many more people out, be accepted by the general population and placate the Lib Dems! However, it might also hit people on final salary pension schemes if they get promoted! Which of course makes it more important to push through pension reform, which is exactly the government's aim. So if you think you're safe because you're within your last 10 years - watch out; do your sums before seeking promotion!
I don't think the government will single out the military by taxing gratuities as such, but it's possible that they may start taxing all pension lump sum payments. If they did that for the whole country, then they could easily justify taxing military gratuities. However, that would be a very bold move and another great disincentive to making pension payments; so I don't think it's going to happen.
What's far more likely is another reduction in pension contributions - down to possibly £30,000 a year - so that rich contributors can benefit far less. That would catch many more people out, be accepted by the general population and placate the Lib Dems! However, it might also hit people on final salary pension schemes if they get promoted! Which of course makes it more important to push through pension reform, which is exactly the government's aim. So if you think you're safe because you're within your last 10 years - watch out; do your sums before seeking promotion!
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There are still one or two folk I know of who will reach 55 and still be in quarters, never owned their own home and the gratuity is no way going to buy them a house
No idea what happened to him, and whilst we all had a degree of sympathy, the over riding feeling was of a self-inflicted injury. I suspect that given society's drift towards a sense of self-entitelment and immediate gratification without consideration for the consequences, there are probably more than a few who are in the same boat.
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This is well within budget @ £7000!!!!
Is this Britain's cheapest house? Terraced home goes up for auction for just £7,000 | Mail Online
Is this Britain's cheapest house? Terraced home goes up for auction for just £7,000 | Mail Online
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LFFC,
You could well be right, and a lot of good lads and lasses are very carefully weighing up whether to accept PA / promotion. As for me I took it, I may well be (in) the minority but I still love being in the RAF. I just hope that HMG don't take the p**s out of the boys and girls still proudly serving, as that really would be a kick in the slats.
You could well be right, and a lot of good lads and lasses are very carefully weighing up whether to accept PA / promotion. As for me I took it, I may well be (in) the minority but I still love being in the RAF. I just hope that HMG don't take the p**s out of the boys and girls still proudly serving, as that really would be a kick in the slats.
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Quazzi,
Here are a couple of important things that you should remember:
If you've recently been promoted, you won't be credited with the resulting pension increase for another year or two. So, any further immediate reduction in the pension tax-free allowance - like the one announced just over a year ago - might lead to you being presented with an unexpected tax bill in the not too distant future! But never fear - rather than tap you for the money now, they will take it out of your gratuity when you leave.
Also watch out for any further increase in the actuarial factor used to work out the increase in value of your "pension pot" when your defined pension increases. It was increased from 10 to 16 just over a year ago, but the treasury might argue that, as annuity rates have continued to fall over the last year, it should be increased again - and trust me, that would be a bad thing!
Here are a couple of important things that you should remember:
If you've recently been promoted, you won't be credited with the resulting pension increase for another year or two. So, any further immediate reduction in the pension tax-free allowance - like the one announced just over a year ago - might lead to you being presented with an unexpected tax bill in the not too distant future! But never fear - rather than tap you for the money now, they will take it out of your gratuity when you leave.
Also watch out for any further increase in the actuarial factor used to work out the increase in value of your "pension pot" when your defined pension increases. It was increased from 10 to 16 just over a year ago, but the treasury might argue that, as annuity rates have continued to fall over the last year, it should be increased again - and trust me, that would be a bad thing!
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Receiving a tax bill for a pension scheme that you have no control over would be a really good morale booster. I think everybody in the Armed Forces should get such a bill.
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I am certainly no pension expert so please feel free to ignore my personal uneducated thoughts below, and I am very much into the twilight of my career, but I am coming to terms to what is rumoured to be about a 10%reduction in real terms in my annual pension, but taxing my Gratuity/EDP would be my fear if I was outside the 10 year protection zone.
Those that are between the 38 - 45 (on 1 Apr 12) are the ones that will be affected the most, having made a choice to opt for a second career with Her Majesty rather than leaving for a potential civilian career at what some term as the optimum time, they may have considered pension rights in this decision process.
The very clever HMT that has historically taxed our graturities at 0% means that as per any other tax they can raise or lower accordingly without any requirement to consult or seek legal assurance. Therefore there is rumour that at the end of the consultation period that although accrued rights has ben retained, HMT will will simply raise the rate of tax on the gratuities of those outside the 10 year protection zone from 0% to what some believe may be in the region of 30-40% tax - (ouch
)
No act of parliament required, tax is simply in the gift of the Treasury.
Not only is that going to hurt those outside of the 10 year buffer that did elect to stay on in the belief that they were going to receive a decent pension, but also if 2015 is the cut off, then will there be a mass exodus for the door as the maths doesn't add up and it doesn't make financial sense to stay (acknowlegding that for some job satisfaction outweighs financial gain).
Or, has HMT/MOD been very very clever by suddenly announcing the 1 April 12 'lock down' date as no one will be able to leave in one month in order to avoid the tax changes. I cannot see why if the pension changes will not take effect until 2015/16, why 1 Apr 12 is being used as an arbitary date for policy decisions (especially when we have not had visibility/input into the consultation process yet)? 4 years for people to decide to stay or go (in order to gain from the old pension benefits if they so whish appears fair, and should allow AMP to allow the manning levers to manage the outflow. Raising the drawbridge in one month does not seem fair if that it is the plan?
Why not 1 Apr 2015?
I have a horrible, personal feeling that it is because everyone would try and leave before the new pesions kicked in and therefore 1 Apr 12 shuts the door nice and early.
But hopefully I am very wrong about this.
Those that are between the 38 - 45 (on 1 Apr 12) are the ones that will be affected the most, having made a choice to opt for a second career with Her Majesty rather than leaving for a potential civilian career at what some term as the optimum time, they may have considered pension rights in this decision process.
The very clever HMT that has historically taxed our graturities at 0% means that as per any other tax they can raise or lower accordingly without any requirement to consult or seek legal assurance. Therefore there is rumour that at the end of the consultation period that although accrued rights has ben retained, HMT will will simply raise the rate of tax on the gratuities of those outside the 10 year protection zone from 0% to what some believe may be in the region of 30-40% tax - (ouch
)No act of parliament required, tax is simply in the gift of the Treasury.
Not only is that going to hurt those outside of the 10 year buffer that did elect to stay on in the belief that they were going to receive a decent pension, but also if 2015 is the cut off, then will there be a mass exodus for the door as the maths doesn't add up and it doesn't make financial sense to stay (acknowlegding that for some job satisfaction outweighs financial gain).
Or, has HMT/MOD been very very clever by suddenly announcing the 1 April 12 'lock down' date as no one will be able to leave in one month in order to avoid the tax changes. I cannot see why if the pension changes will not take effect until 2015/16, why 1 Apr 12 is being used as an arbitary date for policy decisions (especially when we have not had visibility/input into the consultation process yet)? 4 years for people to decide to stay or go (in order to gain from the old pension benefits if they so whish appears fair, and should allow AMP to allow the manning levers to manage the outflow. Raising the drawbridge in one month does not seem fair if that it is the plan?
Why not 1 Apr 2015?
I have a horrible, personal feeling that it is because everyone would try and leave before the new pesions kicked in and therefore 1 Apr 12 shuts the door nice and early.
But hopefully I am very wrong about this.
Last edited by MaroonMan4; 26th Feb 2012 at 04:32.
What I find unreasonable is, that for those with more than 10 years to go that have to change to AFPS15 in 2015 - why can't we have a further 10 years on our current scheme like those that leave in 10 year's time or less?
Seems totally unreasonable and should be open to contest. Otherwise, I suggest it is "ageist" against those at the same rank, same pay level but different age.
The B Word
Seems totally unreasonable and should be open to contest. Otherwise, I suggest it is "ageist" against those at the same rank, same pay level but different age.
The B Word
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JTO,
My key point....
Irrespective of the 43 yr point, if all of us get told this Budget or as part of that AFPRB settlement that the HMRC will start taxing our gratuities/EDPs from 1 Apr 12 then none of us have the chance to plan and consider the pros and cons of an exit before 2015. The draw bridge goes up with no one being able to PVR and be out in one month.
But from an AMP perspective I can see why he would not want the optionI and ambiguity to remain as potentially with 1year to go to to the new pension terms (2014?) there could conceivably be a mass exodus and major skills shortage as the difference between 0% tax and 30-40% on EDPs makes it a no brainier for many - however much they may or may not enjoy their job and the RAF.
My key point....
Irrespective of the 43 yr point, if all of us get told this Budget or as part of that AFPRB settlement that the HMRC will start taxing our gratuities/EDPs from 1 Apr 12 then none of us have the chance to plan and consider the pros and cons of an exit before 2015. The draw bridge goes up with no one being able to PVR and be out in one month.
But from an AMP perspective I can see why he would not want the optionI and ambiguity to remain as potentially with 1year to go to to the new pension terms (2014?) there could conceivably be a mass exodus and major skills shortage as the difference between 0% tax and 30-40% on EDPs makes it a no brainier for many - however much they may or may not enjoy their job and the RAF.
If they do decide to tax gratuities, they may well find that their tax take isn't quite as much as they anticipate if such a measure is extended to all gratuities rather than those earning say over 100K.
Many people commute their pensions precisely because it is tax efficient to do so. Get a bigger chunk of your pensions up front tax free and also lower your annual tax bill up to 55 by way of lower annual pension payments. But if you make commutation an unattractive option, rather than getting 40% of an 80K gratuity, people will just simply not commute and HMT will instead be looking at 40% of 40K (very rough figures).
Then if an individual has any fiscal nouse, they will be looking at ways to legitimately minimise their tax burden, either by putting whatever money into a tax free ISA or a private pension. If they go for the pension route, then the government will have to stump up 20% tax relief on your contributions, which on a 10K / yr pension contribution would amount to 2K tax relief, which if extrapolated over the years means that you would probably (eventually!) get back in tax relief what you had lost in your gratuity being taxed. If they go down the ISA route, then whilst there is no tax relief up front, neither is there any tax to pay downstream - yet more money safe from HMT's grubby little mits.
I admit that squirelling away your immediate pension for the future means you can't spend it now - and you would have to ensure that in doing so you could maintain your commitments and standard of living - but the point I am getting at is that HMT, whether they intended it or not, have started a game of cat and mouse. For every hairbrained scheme HMT comes up with, any individual with a degree of nouse about them will look for ways round it. I'm fairly sure that as part of George's 'Plan A' , a discussion was had that went along the lines of lets keep interest rates low to encourage domestic consumption. But as tax rates and inflation went up, all it did was to make it more attractive to pay down debt and over pay on the mortgage. If they do decide to tax gratuities, the laws of unitended consequences will simply kick in once more. Unfortunately for Dave and George, many people are now starting to wake up to the fact of what the Government is doing and are actively taking steps within the regulations to preserve their own financial interests.
Many people commute their pensions precisely because it is tax efficient to do so. Get a bigger chunk of your pensions up front tax free and also lower your annual tax bill up to 55 by way of lower annual pension payments. But if you make commutation an unattractive option, rather than getting 40% of an 80K gratuity, people will just simply not commute and HMT will instead be looking at 40% of 40K (very rough figures).
Then if an individual has any fiscal nouse, they will be looking at ways to legitimately minimise their tax burden, either by putting whatever money into a tax free ISA or a private pension. If they go for the pension route, then the government will have to stump up 20% tax relief on your contributions, which on a 10K / yr pension contribution would amount to 2K tax relief, which if extrapolated over the years means that you would probably (eventually!) get back in tax relief what you had lost in your gratuity being taxed. If they go down the ISA route, then whilst there is no tax relief up front, neither is there any tax to pay downstream - yet more money safe from HMT's grubby little mits.
I admit that squirelling away your immediate pension for the future means you can't spend it now - and you would have to ensure that in doing so you could maintain your commitments and standard of living - but the point I am getting at is that HMT, whether they intended it or not, have started a game of cat and mouse. For every hairbrained scheme HMT comes up with, any individual with a degree of nouse about them will look for ways round it. I'm fairly sure that as part of George's 'Plan A' , a discussion was had that went along the lines of lets keep interest rates low to encourage domestic consumption. But as tax rates and inflation went up, all it did was to make it more attractive to pay down debt and over pay on the mortgage. If they do decide to tax gratuities, the laws of unitended consequences will simply kick in once more. Unfortunately for Dave and George, many people are now starting to wake up to the fact of what the Government is doing and are actively taking steps within the regulations to preserve their own financial interests.
Melchett,
I'm not sure that commuting is tax efficient, at IPP at least. I seem to remember when I left a few years back and was doing the calculation, that commuting gives you approximately the same as if you were taxed at 40% on a non-commuted pension. Therefore, if you were expecting to go into a low paid job, or prolonged retraining (and could be sure that you would live long enough to reap the rewards of your pension) then commuting may make the sense you imagine.
Benefit of commutation is better a bird in the hand than two in the bush!
I'm not sure that commuting is tax efficient, at IPP at least. I seem to remember when I left a few years back and was doing the calculation, that commuting gives you approximately the same as if you were taxed at 40% on a non-commuted pension. Therefore, if you were expecting to go into a low paid job, or prolonged retraining (and could be sure that you would live long enough to reap the rewards of your pension) then commuting may make the sense you imagine.
Benefit of commutation is better a bird in the hand than two in the bush!
Back at Post #105...
Still holds true to me. Commutation is the way ahead if you are a high rate taxpayer!
LJ
I also worked out that I was significantly better off doing the resettlement commute. I took £4800 off my pension to raise £39k tax free and I will be paying that for just shy of 10 years (call it £48k). However, as a top rate 40% taxpayer I would be giving the Govt £19200 in tax for that £48k over the same period if I didn't commute; which would mean in real terms I pay £28800 to raise £39k - so I'm £10200 better off over the next 9.6years (call it £1k a year for cash!).
LJ
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Here's a question for you all.... With our AFPS75 pensions being preserved and with such a large change in terms of service do we all get the option to PVR on 1st April 15 and draw out 'preserved' pension and tax free lump sum immediately? 😜
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This is what I am wondering. It would make an interesting test case, refuse to accept the pensions changes post 2015. Now with the current state of aircrew retention allowance, with you losing 12 months worth on PVR, I dont think they could keep you in, especially if you couldnt afford the 12 month 20% in pay.
All these pensions changes are targetted against civil servants with very few transferrable skills to the outside world. Either they have to throw the dog a bone with some pretty huge targetted FRI's or they are going to have to gap capability.
I dont intend to stay if they tax our gratuity and I will use the change in terms and conditions as the means to get out.
All these pensions changes are targetted against civil servants with very few transferrable skills to the outside world. Either they have to throw the dog a bone with some pretty huge targetted FRI's or they are going to have to gap capability.
I dont intend to stay if they tax our gratuity and I will use the change in terms and conditions as the means to get out.
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VinRouge shall I start a group? If we all throw £1000 at it and get 50 people to sign up that should get a good enough law firm. I sense a panicked meeting of the RAF 'not good enough to get in anywhere else' lawyers around lunchtime tomorrow.
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VinRouge shall I start a group? If we all throw £1000 at it and get 50 people to sign up that should get a good enough law firm. I sense a panicked meeting of the RAF 'not good enough to get in anywhere else' lawyers around lunchtime tomorrow.
We need a mutiny.