New pension finalised
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It could well do, yes - the net effect will be similar to a Sqn Ldr/Wing Commander who sees their implicit AFPS contribution rise significantly in the year of promotion. I could be wrong, but in days of yore wasn't aircrew retention pushed by increasing the flying pay component (which wasn't pensionable) and flatlining salary (which was)? If you go onto PAS then your entire income is pensionable which means that Deliverance's implicit contribution to Deliverance's Final Salary 'pot' is also going to reflect that. Keep one ear out for pension contribution tax relief mentions in the Autumn Statement today.
Keep one ear out for pension contribution tax relief mentions in the Autumn Statement today
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Yes and no. You are right, but I was referring more to the levels that you will gain tax relief up to - but I could have been clearer. With that in mind, the amount that you can put into a pension each year has gone down to £40,000 (from £50,000) and there will be an implication to many reading this. He has also reduced the lifetime allowance to £1.25 millions which will have an impact on those at the higher echelon.
Ed Balls seemed wrong footed with much of the speech.
Ed Balls seemed wrong footed with much of the speech.
With that in mind, the amount that you can put into a pension each year has gone down to £40,000 (from £50,000) and there will be an implication to many reading this.
Oh well, if they want to tax me more heavily just because of my pension, then I just draw the spending in elsewhere to compensate. You can't have it all Mr Osborne.
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It looks like HArgreaves Lansdown have also done some analysis on the impact to middle earners. I can't get at their site through IGS, but the Daily Mail are quoting the following from H-L in response to Treasury claims that the reduction in annual allowance to 40K will only hit those earning 150K+
Assuming that is correct, you have it in black and white. Any one getting promoted to wg cdr or possibly even flt lts whose pay suddenly jumps will potentially be faced with a tax bill in excess of 10k for their efforts. Someone please remind me why we all bother 
I don't know why Osborne is worried about extending austerity to 2018. He won't be Chancellor past 2015 after today's performance.
Hargreaves Lansdown said that someone earning £55,000 with 20 years service on a 1/60th final salary scheme - in which they are given 1/60th of their final salary for every year of service upon retirement - would be given a one-off tax charge of £12,768 on their pension contributions if their salary was to increase by £10,000 during a calendar year.
I don't know why Osborne is worried about extending austerity to 2018. He won't be Chancellor past 2015 after today's performance.
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Melch,
Yes, the main impact of these changes for AFPS Scheme members on the cusp of career greatness may be that middle/senior ranking officers who receive promotions that push an increase in their pension contribution above the annual allowance, may be liable to tax charges.
But a couple of years ago, HMRC included a facility for previous unused allowances to be carried forward (to mitigate getting a shock by getting a large tax bill as a result of getting a relatively modest pay rise/promotion). Under the rules, unused annual allowances for the previous three tax years could be carried forward and added to that year's £50,000 allowance (now 40K, of course) allowance.
Although I haven't read the full detail, I have certainly not seen anything which mentions that the carry-forward guidance has been removed (however, someone who gets two quick promotions might be in a sticky situation). Importantly, remember that this facility is also available to personal pension contributions as well, and offers an all-round useful opportunity to maximise tax relief on a large contribution to retirees which would not have been possible under the previous rules of a couple of years ago.
As these changes do not happen for almost 18 months, it'd be a useful idea for anyone who thinks they may be approaching the annual allowance to anticipate making use of the carry-forward rule before the legislation comes into effect (to make the most of pension contributions).
Seeing as you're already mad, best not read all about the hypocrisy here then..
Pages - MPs' pay and pensions background
Yes, the main impact of these changes for AFPS Scheme members on the cusp of career greatness may be that middle/senior ranking officers who receive promotions that push an increase in their pension contribution above the annual allowance, may be liable to tax charges.
But a couple of years ago, HMRC included a facility for previous unused allowances to be carried forward (to mitigate getting a shock by getting a large tax bill as a result of getting a relatively modest pay rise/promotion). Under the rules, unused annual allowances for the previous three tax years could be carried forward and added to that year's £50,000 allowance (now 40K, of course) allowance.
Although I haven't read the full detail, I have certainly not seen anything which mentions that the carry-forward guidance has been removed (however, someone who gets two quick promotions might be in a sticky situation). Importantly, remember that this facility is also available to personal pension contributions as well, and offers an all-round useful opportunity to maximise tax relief on a large contribution to retirees which would not have been possible under the previous rules of a couple of years ago.
As these changes do not happen for almost 18 months, it'd be a useful idea for anyone who thinks they may be approaching the annual allowance to anticipate making use of the carry-forward rule before the legislation comes into effect (to make the most of pension contributions).
Seeing as you're already mad, best not read all about the hypocrisy here then..
Pages - MPs' pay and pensions background
The new pension calculator was supposed to be ready by Jan 2013. By the end of 2012 things changed a little:
Having logged on to the current calculator today it now says:
Given the uncertainties for the flt lt PAS offers this rolling delay is not good.
A revised Pensions Calculator, incorporating both accrued rights and benefit entitlements under the new scheme, will be developed once the final design of the new scheme is agreed. On current planning assumptions it is anticipated a revised calculator will be on line from April 2013.
A revised Pensions Calculator, incorporating both accrued rights and benefit entitlements under the new scheme, is currently being developed. On current planning assumptions it is anticipated that the revised calculator will be on line from June 2013.
New pension finalised
JTO.
As one of the Flt Lts with a PAS offer on the table, and someone who has always rather fancied the PAS life, I can safely say that there is no way in hell I will accept until the pensions calculator is available and the RAF can decide what its position is regarding FRIs. I'd be fascinated to know how many of the other Flt Lts in a similar position are likely to accept.
It is pretty piss poor on the part of the RAF really.
BV
As one of the Flt Lts with a PAS offer on the table, and someone who has always rather fancied the PAS life, I can safely say that there is no way in hell I will accept until the pensions calculator is available and the RAF can decide what its position is regarding FRIs. I'd be fascinated to know how many of the other Flt Lts in a similar position are likely to accept.
It is pretty piss poor on the part of the RAF really.
BV
The new calculator is out on trial
The new pensions calculator is out on trial - had a very unofficial play with it today. It looks similar to the current calculator right the way up to the final screen when it suddenly gets complicated as it gives you a break down of what you get from the various schemes.
The AFPS 15 payments are classed as EDP & EDP lump sum in a way that is similar to the AFPS 05 scheme.
But what about the numbers I hear you cry? Well, it was only a quick play, so I may have misunderstood or made a mistake, but the initial indications are that those of us fortunate enough to bank an AFPS 75 pension before change over will be better off in the long run.
Assuming I don't get promoted again and leave as a sqn ldr in 2030, I would currently get around 26.8k / yr and a 80.5k lump sum on the 75 scheme.
On the new scheme, when I leave at 55 (2030) I get 16.5k pension and 49.5k lump sum from my 75 scheme PLUS an 8.5k EDP and 42.9k EDP lump sum giving a total pay out at 55 of 25k 'pension' and a 92,4k lump sum - more if you opt for commutation.
When I hit 60, the AFPS 15 deferred pension appears to kick in with a total defered pension of 19.1k. Given that includes the 8.5k initial EDP at 55, I reckon that is an uplift of around 10.6k at 60. If I'm correct, then the combined 75/15 scheme means the following to me:
Leave RAF at 55 - total annual payment c. 25k (-1.8k on 75 scheme for 5 years)
AFPS 15 kicks in at 60 - total annual payment c 35.6k (+10K on 75 scheme from 60)
State pension kicks in at 67 .... if you believe the govt!
In summary, initial indications appear to show that there may well be some of us, albeit a minority, are better off by clinging on to the bitter end as a result of banking the 75 pension before change over and then accruing a new scheme at a 1/47 accrual rate on a relatively high 'starting' salary. I think, and I stress the word think, the new scheme might give me a total pension as a sqn ldr from 60 onwards that is closer to the pension that I might expect as a wg cdr on the 75 scheme.
I do hope I've got it right and I don't review it tomorrow and the numbers suddenly look worse!
The AFPS 15 payments are classed as EDP & EDP lump sum in a way that is similar to the AFPS 05 scheme.
But what about the numbers I hear you cry? Well, it was only a quick play, so I may have misunderstood or made a mistake, but the initial indications are that those of us fortunate enough to bank an AFPS 75 pension before change over will be better off in the long run.
Assuming I don't get promoted again and leave as a sqn ldr in 2030, I would currently get around 26.8k / yr and a 80.5k lump sum on the 75 scheme.
On the new scheme, when I leave at 55 (2030) I get 16.5k pension and 49.5k lump sum from my 75 scheme PLUS an 8.5k EDP and 42.9k EDP lump sum giving a total pay out at 55 of 25k 'pension' and a 92,4k lump sum - more if you opt for commutation.
When I hit 60, the AFPS 15 deferred pension appears to kick in with a total defered pension of 19.1k. Given that includes the 8.5k initial EDP at 55, I reckon that is an uplift of around 10.6k at 60. If I'm correct, then the combined 75/15 scheme means the following to me:
Leave RAF at 55 - total annual payment c. 25k (-1.8k on 75 scheme for 5 years)
AFPS 15 kicks in at 60 - total annual payment c 35.6k (+10K on 75 scheme from 60)
State pension kicks in at 67 .... if you believe the govt!
In summary, initial indications appear to show that there may well be some of us, albeit a minority, are better off by clinging on to the bitter end as a result of banking the 75 pension before change over and then accruing a new scheme at a 1/47 accrual rate on a relatively high 'starting' salary. I think, and I stress the word think, the new scheme might give me a total pension as a sqn ldr from 60 onwards that is closer to the pension that I might expect as a wg cdr on the 75 scheme.
I do hope I've got it right and I don't review it tomorrow and the numbers suddenly look worse!
Last edited by Melchett01; 16th May 2013 at 22:51.
Al,
It did give figures for maximum commutation, but only set against the AFPS 15 pension. So whether that means no further commutation of the AFPS 75 element of the pension?
Interestingly, it also allowed you to select 'growth factors', I assume to reflect what CPI might do - I might be wrong on this, but they were set at 0%, 1.25%, 2.25% and 3.25%.
But most interesting of all, the chart has a sliding bar underneath that allows you to automatically recalculate your pension if you leave early so you don't have to go through the rigmarole of putting all the numbers in again. Wouldn't it be interesting, if say in a couple of years time, once NEM were sorted out, that bar moved to the right as well as the left, allowing to you recalculate you pension if you extend past 55 to 60. Just a thought!
It did give figures for maximum commutation, but only set against the AFPS 15 pension. So whether that means no further commutation of the AFPS 75 element of the pension?
Interestingly, it also allowed you to select 'growth factors', I assume to reflect what CPI might do - I might be wrong on this, but they were set at 0%, 1.25%, 2.25% and 3.25%.
But most interesting of all, the chart has a sliding bar underneath that allows you to automatically recalculate your pension if you leave early so you don't have to go through the rigmarole of putting all the numbers in again. Wouldn't it be interesting, if say in a couple of years time, once NEM were sorted out, that bar moved to the right as well as the left, allowing to you recalculate you pension if you extend past 55 to 60. Just a thought!
Last edited by Melchett01; 16th May 2013 at 22:49.
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Melch:
As the biggest player of the business model that it does superbly well, H-L is going to be sweating on HMRC's recent decision to tax (non ISA and non pension) fund rebates. H-L is.. 'prudent' when it comes to passing on opaque rebates.
Watch out for tax claims on the likes of supermarket loyalty schemes and cashback credit cards..
edit: Thanks for your answer, interesting.
It looks like HArgreaves Lansdown have also done some analysis on the impact to middle earners. I can't get at their site through IGS, but the Daily Mail are quoting the following from H-L in response to Treasury claims that the reduction in annual allowance to 40K will only hit those earning 150K+
Watch out for tax claims on the likes of supermarket loyalty schemes and cashback credit cards..
edit: Thanks for your answer, interesting.
Last edited by Al R; 16th May 2013 at 23:00.
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Melchett,
Are you PAS already and is that what you based your calculations on? Second question. How many years and days is it based on? I worked out slightly less on 75 scheme, but it may be due to number of years and days before my 55 point.
Are you PAS already and is that what you based your calculations on? Second question. How many years and days is it based on? I worked out slightly less on 75 scheme, but it may be due to number of years and days before my 55 point.
I've been playing with the calculator too but I don't think it is working correctly. If it is there will some massive surprises!
I ran figures for my own circumstances and noticed that the 'frozen' element under the old scheme did not remain fixed. In the AFPS75 case my pension went up by £100 a year or so, adding an unexpected £1000 or so to the '75 element which is then added to the AFPS15 bit. Total for PAS sqn ldr at 60 was £47k.
When I did the same for AFPS05 the smaller AFPS05 element increased by a hefty sum each and every year post 2015. It would be a hell of a shock if this was true as for a PAS sqn ldr this made the total pension around £58k!
If you leave before 60 the picture is considerably less rosy; with no sign of the promised actuarially reduced AFPS15 pension at 55 on the calculator and no abatement figures published this may not be good news.
I ran figures for my own circumstances and noticed that the 'frozen' element under the old scheme did not remain fixed. In the AFPS75 case my pension went up by £100 a year or so, adding an unexpected £1000 or so to the '75 element which is then added to the AFPS15 bit. Total for PAS sqn ldr at 60 was £47k.
When I did the same for AFPS05 the smaller AFPS05 element increased by a hefty sum each and every year post 2015. It would be a hell of a shock if this was true as for a PAS sqn ldr this made the total pension around £58k!
If you leave before 60 the picture is considerably less rosy; with no sign of the promised actuarially reduced AFPS15 pension at 55 on the calculator and no abatement figures published this may not be good news.
Had a chance to play with the new calculator in a bit more depth this morning than yesterday and after my initial optimism, the small print and complexity of a hybrid system means that individuals will potentially get caught out if they aren't fully aware of how it works and what their entitlement is. So as dull as it sounds / is - read the small print, get under the bonnet of the new scheme and learn how it works before you jump - it will be very easy to make a decision based on incorrect knowledge / understanding.
That said, having run some more numbers, it does still appear to be the case that if you can bank a AFPS 75 pension before scheme transition, then you stand a good chance of benefiting. This seems to be the case both if you leave at an option point or if you stay for a full career.
The down side is the pension is now effectively staged and your initial pension will be lower on the hybrid scheme than it would be on the 75 scheme. However, assuming you live to state pension age, that is when you will find yourself suddenly sitting pretty with a fair old pension coming in. By way of illustration, and based on my current situation and using numbers from the calculators and assuming you serve to 55, retire as a top level Wg Cdr and live to 80 (seemed a reasonable set of assumptions for a mid-ish 30s sqn ldr on a standard pay scale):
AFPS 75:
Annual Pension: 36,344 x25
Terminal Grant: 109,032
Total received by 80 = 1,017,632 (averages out to 40,705 / p.a)
AFPS 75/15:
Annual Pension 55 - 60: 22,389 x5
Annual Pension 60 - 67: (22,389 + 10,475 EDP) x 7
Annual Pension 67 - 80: (22,389 + 10475 + 13,139 defered pension) x13
Terminal Grant @ 55: 67,167
EDP Lump Sum @ 60 53,133
Total received by 80 = 1,060,332 (averages out to 42,413 / p.a)
So based on my situation, I will be slightly up overall but my payments on the new scheme will be staggered so that I get less than the 75 Scheme in the early years, but once I hit 67 (my forecast state pension age) then I get a significant boost to my income and will, at that stage, be able to afford to hire that nubile young nurse to look after me in my dotage.
However, the staggered income is also a down side. I'm sure there will be plenty of people who won't make it to their state pension age when the big uplift happens, so the Govt will save a pot of cash that way. Also, the way the Treasury have been tinkering with the tax bands, I would guess that a fair number of people who managed to benefit from banking a 75 Scheme pension will consequently find themselves suddenly paying higher rate tax as a pensioner which might come as a bit of a shock. This might be an issue in the year the EDP lump sum is paid out as well.
If you decide to leave early, as Just This Once pointed out, your numbers are considerably lower; if I were to take my option at 44, I would be looking at a total over the period to 80 some 300k less than if I served a full career. If you PVR rather than taking an option, the figure will be reduced even further. But then again, that always was the case on the 75 Scheme and the numbers still play out over the period to age 80 as more or less breaking even.
I guess all this means you now, more than ever, have to do your homework and try your best to work out what the new scheme will give you, whether you like the odds of making it to state pension age where you will eventually get quite a nice sum of money and how to configure your tax arrangements to minimise your tax liabilities in old age ... do you really want to be doing a tax return as a 70 yr old?! (Al R / Voxpop - I'll take a cheque or a slab for that blatant bit of IFA / FPS promotion!)
That said, having run some more numbers, it does still appear to be the case that if you can bank a AFPS 75 pension before scheme transition, then you stand a good chance of benefiting. This seems to be the case both if you leave at an option point or if you stay for a full career.
The down side is the pension is now effectively staged and your initial pension will be lower on the hybrid scheme than it would be on the 75 scheme. However, assuming you live to state pension age, that is when you will find yourself suddenly sitting pretty with a fair old pension coming in. By way of illustration, and based on my current situation and using numbers from the calculators and assuming you serve to 55, retire as a top level Wg Cdr and live to 80 (seemed a reasonable set of assumptions for a mid-ish 30s sqn ldr on a standard pay scale):
AFPS 75:
Annual Pension: 36,344 x25
Terminal Grant: 109,032
Total received by 80 = 1,017,632 (averages out to 40,705 / p.a)
AFPS 75/15:
Annual Pension 55 - 60: 22,389 x5
Annual Pension 60 - 67: (22,389 + 10,475 EDP) x 7
Annual Pension 67 - 80: (22,389 + 10475 + 13,139 defered pension) x13
Terminal Grant @ 55: 67,167
EDP Lump Sum @ 60 53,133
Total received by 80 = 1,060,332 (averages out to 42,413 / p.a)
So based on my situation, I will be slightly up overall but my payments on the new scheme will be staggered so that I get less than the 75 Scheme in the early years, but once I hit 67 (my forecast state pension age) then I get a significant boost to my income and will, at that stage, be able to afford to hire that nubile young nurse to look after me in my dotage.
However, the staggered income is also a down side. I'm sure there will be plenty of people who won't make it to their state pension age when the big uplift happens, so the Govt will save a pot of cash that way. Also, the way the Treasury have been tinkering with the tax bands, I would guess that a fair number of people who managed to benefit from banking a 75 Scheme pension will consequently find themselves suddenly paying higher rate tax as a pensioner which might come as a bit of a shock. This might be an issue in the year the EDP lump sum is paid out as well.
If you decide to leave early, as Just This Once pointed out, your numbers are considerably lower; if I were to take my option at 44, I would be looking at a total over the period to 80 some 300k less than if I served a full career. If you PVR rather than taking an option, the figure will be reduced even further. But then again, that always was the case on the 75 Scheme and the numbers still play out over the period to age 80 as more or less breaking even.
I guess all this means you now, more than ever, have to do your homework and try your best to work out what the new scheme will give you, whether you like the odds of making it to state pension age where you will eventually get quite a nice sum of money and how to configure your tax arrangements to minimise your tax liabilities in old age ... do you really want to be doing a tax return as a 70 yr old?! (Al R / Voxpop - I'll take a cheque or a slab for that blatant bit of IFA / FPS promotion!)
Last edited by Melchett01; 17th May 2013 at 12:39.