AFPS15 - government decision.
Thread Starter
Join Date: Jul 2007
Location: @exRAF_Al
Posts: 3,297
Likes: 0
Received 0 Likes
on
0 Posts
Are you hoping that an abated AFPS75 income will result in a beneficial (to you) LTA (re)calculation? No, it won’t. The position is that you will be liable to two BCE at the point of initial departure (Benefit Crystalisation Events - 2 and poss 3). Abatement is a nuance of the scheme rules (as determined by The Treasury) and is subordinate to HMRC. Paragraphs 7 to 10 and 11 of Schedule 10 Finance Act 2005 refer.
JTO - thank you for the correction on 50/30 vs 55!
A question of my own now. Does anyone know what the position on lifetime allowance would be if one were to retire, crystallise a lucrative AFPS75 pension, and immediately rejoin on AFPS15? I understand fully that the 75 immediate pension will be abated to keep total annual income no higher than the previous salary, and that annual allowance breaches could still be a player (although unlikely if rejoining on a lower salary). Rather, my question is on the lifetime tax treatment of the resulting ‘virtual pension pot’ when the two parts of it are being simultaneously topped up and drawn down. There are quite a few out there who have done this, I believe, so I hope there is one among the audience here! Given the dire financial straits the government finds itself in, I see the chances of an increase in pension tax relief being somewhere between ‘nil’ and ‘zero’, and this pension ruling may present an opportunity to take stock. Pension tax avoidance and reduction in mortgage interest (by ploughing the AFPS75 retirement lump sum straight in, minus the family holiday of a lifetime
) could make this quite compelling.
A question of my own now. Does anyone know what the position on lifetime allowance would be if one were to retire, crystallise a lucrative AFPS75 pension, and immediately rejoin on AFPS15? I understand fully that the 75 immediate pension will be abated to keep total annual income no higher than the previous salary, and that annual allowance breaches could still be a player (although unlikely if rejoining on a lower salary). Rather, my question is on the lifetime tax treatment of the resulting ‘virtual pension pot’ when the two parts of it are being simultaneously topped up and drawn down. There are quite a few out there who have done this, I believe, so I hope there is one among the audience here! Given the dire financial straits the government finds itself in, I see the chances of an increase in pension tax relief being somewhere between ‘nil’ and ‘zero’, and this pension ruling may present an opportunity to take stock. Pension tax avoidance and reduction in mortgage interest (by ploughing the AFPS75 retirement lump sum straight in, minus the family holiday of a lifetime
) could make this quite compelling.
Thread Starter
Join Date: Jul 2007
Location: @exRAF_Al
Posts: 3,297
Likes: 0
Received 0 Likes
on
0 Posts
Thread Starter
Join Date: Jul 2007
Location: @exRAF_Al
Posts: 3,297
Likes: 0
Received 0 Likes
on
0 Posts
The AFPS75 entitlement doesn’t go away; for instance it is not all converted into a 22-year AFPS15 EDP just because they retired 2 years after the scheme changed. This is what’s known as “accrued rights” and has been a sacrosanct principle of all the pension reforms over the last 15 years.
https://assets.publishing.service.go...14_October.pdf
https://assets.publishing.service.go...m-pensions.pdf.
Thread Starter
Join Date: Jul 2007
Location: @exRAF_Al
Posts: 3,297
Likes: 0
Received 0 Likes
on
0 Posts
And as if by magic, Jo is reporting this morning that the public accounts select committee has called for a wide reaching review into pension reliefs and whether the £38bn “opportunity cost” of pensions is a price worth paying. That this specific question is being asked, suggests that the writing is on the wall for the current pension taxation system.
https://www.ft.com/content/fa76ea43-...8-c14ac36cf9fb
https://www.ft.com/content/fa76ea43-...8-c14ac36cf9fb
Last edited by Al R; 20th Jul 2020 at 10:43.
And as if by magic, Jo is reporting this morning that the public accounts select committee has called for a wide reaching review into pension reliefs and whether the £38bn “opportunity cost” of pensions is a price worth paying. That this specific question is being asked, suggests that the writing is on the wall for the current pension taxation system.
https://www.ft.com/content/fa76ea43-...8-c14ac36cf9fb
https://www.ft.com/content/fa76ea43-...8-c14ac36cf9fb
You're gonna be stuffed mate but the MP's pension scheme will only get some tinkering around the edges and still be massively generous to its recipients. 
Last edited by SamYeager; 20th Jul 2020 at 13:38. Reason: Typo
Harsh reality?
The obvious problem I see is that we all know the pensions bill is one the government can’t really afford and they will probably do anything to rid themselves of it.
The only way to protect what you have (for now at least) is to leave the service and realise your asset. The 2022 date suddenly sounds like a ticking clock.
I just can’t shake the nagging feeling that I should cut and run with, what will by then be, a 23 year AFPS 75, PAS pension.
Rejoining at a later date or joining the reserves is always an option and, as PAS, would not be a terrible deal.
I’m hoping to be proven wrong.
BV
The only way to protect what you have (for now at least) is to leave the service and realise your asset. The 2022 date suddenly sounds like a ticking clock.
I just can’t shake the nagging feeling that I should cut and run with, what will by then be, a 23 year AFPS 75, PAS pension.
Rejoining at a later date or joining the reserves is always an option and, as PAS, would not be a terrible deal.
I’m hoping to be proven wrong.
BV
I think it’s to do with tax relief on personal pensions.
Say you earn £55k a year, but want to invest in a personal pension plan, then if you were to pay £5k into such a plan you would get £1k paid into your plan by the government, and you woul get a further £1k back when you file your tax return. You get 40% on that £5 back. It’s a nice way of keeping yourself in the lower tax band, for now.
It’s a good kickback if you can afford it, but you won’t see the 20% that goes into your plan until you start drawing it.
Say you earn £55k a year, but want to invest in a personal pension plan, then if you were to pay £5k into such a plan you would get £1k paid into your plan by the government, and you woul get a further £1k back when you file your tax return. You get 40% on that £5 back. It’s a nice way of keeping yourself in the lower tax band, for now.
It’s a good kickback if you can afford it, but you won’t see the 20% that goes into your plan until you start drawing it.
Thread Starter
Join Date: Jul 2007
Location: @exRAF_Al
Posts: 3,297
Likes: 0
Received 0 Likes
on
0 Posts
MPs believe that too much of the various reliefs and benefits granted for retirement planning (think free money/tax free cash/accrual etc) are going to those who shouldn’t be having such a large slice of the pie.
For years now, the voices have been getting louder. Is the role of tax reliefs in rebuilding a post pandemic economy efficient and fair, does the current regime of tax reliefs perform this role well, etc. The argument has always been that tax relief (for instance) is worth it in the long run because those who benefit from it then spend it back into the economy, and we all benefit. It’s not working out like that.
So, curtailing relief and benefits in retirement planning for the few would be inexpensive to fix and would be a popular and easy incentivisation for low earners to pay into pensions. What does it mean for you? The changes will most likely be profound (biggest in a generation possibly). Given that personal pension regulation and legislation changes are just one small aspect, then it’s still going to leave the Defined Benefit landscape even more exposed and indefensible.
How that manifests itself could be in any number of ways. Revised revaluation rates might leave you more exposed to annual or lifetime breaches, personal contributions into AFPS, less beneficial commutation etc. Who knows.
For years now, the voices have been getting louder. Is the role of tax reliefs in rebuilding a post pandemic economy efficient and fair, does the current regime of tax reliefs perform this role well, etc. The argument has always been that tax relief (for instance) is worth it in the long run because those who benefit from it then spend it back into the economy, and we all benefit. It’s not working out like that.
So, curtailing relief and benefits in retirement planning for the few would be inexpensive to fix and would be a popular and easy incentivisation for low earners to pay into pensions. What does it mean for you? The changes will most likely be profound (biggest in a generation possibly). Given that personal pension regulation and legislation changes are just one small aspect, then it’s still going to leave the Defined Benefit landscape even more exposed and indefensible.
How that manifests itself could be in any number of ways. Revised revaluation rates might leave you more exposed to annual or lifetime breaches, personal contributions into AFPS, less beneficial commutation etc. Who knows.
Join Date: Apr 2000
Location: Chigley
Posts: 151
Likes: 0
Received 0 Likes
on
0 Posts
I think it’s to do with tax relief on personal pensions.
Say you earn £55k a year, but want to invest in a personal pension plan, then if you were to pay £5k into such a plan you would get £1k paid into your plan by the government, and you woul get a further £1k back when you file your tax return. You get 40% on that £5 back. It’s a nice way of keeping yourself in the lower tax band, for now.
It’s a good kickback if you can afford it, but you won’t see the 20% that goes into your plan until you start drawing it.
Say you earn £55k a year, but want to invest in a personal pension plan, then if you were to pay £5k into such a plan you would get £1k paid into your plan by the government, and you woul get a further £1k back when you file your tax return. You get 40% on that £5 back. It’s a nice way of keeping yourself in the lower tax band, for now.
It’s a good kickback if you can afford it, but you won’t see the 20% that goes into your plan until you start drawing it.
I did see the consultation out the other day and one bit struck me very clearly - this isn't a one way bet, tax bills loom for the unlucky few (probably including yours truly) with the consultation clearly noting that some will require an adjustment to their tax positions.
Yet this doesn't need to be the case. At the start of the year I was stung with a 5-figure tax bill for no reason other than I happened to be good at my job, and a couple of years ago I got lucky and was promoted. Yet when I did the calculations, it was clear that the pension input amounts are not linear i.e they are not in line with pension benefits as defined in the various documentation as being a function of salary, years served and accrual rates. Instead, whilst benefits acrue in a predictable manner, the underlying pension inputs are all over the place, some years decreasing from the previous year's value - something the FPS never did explain to me even though I asked..
The point I am getting to is that any compensation could well incur a signficant tax bill if thrown at the notional pension pot in one go. Yet it doesn't need to be. That the pension inputs vary so much each year begs the question why any compensation can't be fed in over time to smooth the input values thereby negating tax bills which would arise from single large inputs. That, I think, will be a service complaint if I get yet another tax bill simply because the MOD has delibertely exceeded the limits when it could smooth the input levels. Not sure who would be most likely to be at risk from this scenario, but I suspect those who have promoted during the period in question must surely be at risk.
Yet this doesn't need to be the case. At the start of the year I was stung with a 5-figure tax bill for no reason other than I happened to be good at my job, and a couple of years ago I got lucky and was promoted. Yet when I did the calculations, it was clear that the pension input amounts are not linear i.e they are not in line with pension benefits as defined in the various documentation as being a function of salary, years served and accrual rates. Instead, whilst benefits acrue in a predictable manner, the underlying pension inputs are all over the place, some years decreasing from the previous year's value - something the FPS never did explain to me even though I asked..
The point I am getting to is that any compensation could well incur a signficant tax bill if thrown at the notional pension pot in one go. Yet it doesn't need to be. That the pension inputs vary so much each year begs the question why any compensation can't be fed in over time to smooth the input values thereby negating tax bills which would arise from single large inputs. That, I think, will be a service complaint if I get yet another tax bill simply because the MOD has delibertely exceeded the limits when it could smooth the input levels. Not sure who would be most likely to be at risk from this scenario, but I suspect those who have promoted during the period in question must surely be at risk.
Melchy,
The obvious way to do it would seem to be to go back and re-build your pension year-by-year from 2015 to 2022, taking into account any promotions as they happened, and work out the tax due at the end of each year through that period. Add up the tax due over the 7 years, compare it to what you actually paid, and bill you for the difference.
I can’t see them making a huge one-off adjustment to your pension value in 2022 because that would certainly cost more in tax than a series of smaller back-dated adjustments. And that would penalise individuals for receiving in a lump what would have been given to them incrementally had the Government not acted illegally.
The obvious way to do it would seem to be to go back and re-build your pension year-by-year from 2015 to 2022, taking into account any promotions as they happened, and work out the tax due at the end of each year through that period. Add up the tax due over the 7 years, compare it to what you actually paid, and bill you for the difference.
I can’t see them making a huge one-off adjustment to your pension value in 2022 because that would certainly cost more in tax than a series of smaller back-dated adjustments. And that would penalise individuals for receiving in a lump what would have been given to them incrementally had the Government not acted illegally.
Melchy,
The obvious way to do it would seem to be to go back and re-build your pension year-by-year from 2015 to 2022, taking into account any promotions as they happened, and work out the tax due at the end of each year through that period. Add up the tax due over the 7 years, compare it to what you actually paid, and bill you for the difference.
I can’t see them making a huge one-off adjustment to your pension value in 2022 because that would certainly cost more in tax than a series of smaller back-dated adjustments. And that would penalise individuals for receiving in a lump what would have been given to them incrementally had the Government not acted illegally.
The obvious way to do it would seem to be to go back and re-build your pension year-by-year from 2015 to 2022, taking into account any promotions as they happened, and work out the tax due at the end of each year through that period. Add up the tax due over the 7 years, compare it to what you actually paid, and bill you for the difference.
I can’t see them making a huge one-off adjustment to your pension value in 2022 because that would certainly cost more in tax than a series of smaller back-dated adjustments. And that would penalise individuals for receiving in a lump what would have been given to them incrementally had the Government not acted illegally.
That is the obvious thing to do, but it doesn’t work because the amount that is nominally allocated to your pension pot as it is, doesn’t change in line with the calculation of what you are actually due to receive. One year there was a 6 figure increase after a few years of low increases and in some cases year on year dips.
There’s no logic to the input amount and that’s the issue. In compensating people for being naughty, the potential exists for them to just throw a pot of money at peoples’ pots which puts them over the ALA - even though it’s nominal figures rather than any money actually received.
I appreciate it’s a first world problem at the best of times let alone now, but it hardly does much for a sense of injustice if you are taxed on the restitution of demonstrably illegal behaviour when it can easily be avoided by smoothing the inputs.
Last edited by Melchett01; 21st Jul 2020 at 09:09.
The accrual you describe (a large spike at the end of the tax year after promotion, and a smaller spike at the end of the next) is exactly how AFPS75 works, and keeps working even after you switch to another scheme. They can’t and won’t retrospectively flatten that out, it is a ‘feature‘ of the tax treatment of the scheme, and so I don’t see how they could justifiably treat the spikes differently if recalculating the 2015-22 period. All that can be done is to carry forward unused annual allowance from the 3 years before the spike. These are Treasury rules, not MOD: no chance of them changing for the better.
I reckon anyone who was promoted to wg cdr or above after 2013 needs to do some very hard thinking about their 2022 choice; increasing the number of years accrued on 75 makes those tax-attracting spikes even bigger!
I reckon anyone who was promoted to wg cdr or above after 2013 needs to do some very hard thinking about their 2022 choice; increasing the number of years accrued on 75 makes those tax-attracting spikes even bigger!
One for the younger viewers (if there are any on prune..). If/when you do move to AFPS15, if you leave and then re-join (regular or FTRS), I understand that scheme no longer requires your pension to be abated (which is where the amount you get in new wages plus pension cannot be more than wage on last day of previous service). Shame that change of heart wasn't also applied across all pension schemes when AFPS15 began (Declaration - I may have a personal interest in that issue 
)
)
Join Date: Apr 2004
Location: uk
Posts: 70
Likes: 0
Received 0 Likes
on
0 Posts
From the Telegraph...”The days of the fighter pilot are numbered, the Defence Secretary has suggested, saying that only 10 per cent of aircraft will be manned by 2040.”
This will save some money on pensions. Especially now that you have to serve to 60 to get the immediate index linked pension.
This will save some money on pensions. Especially now that you have to serve to 60 to get the immediate index linked pension.
2040?!
Can’t see it being that soon but one day almost certainly.
Even the 10% will still need to learn to fly so jobs for QFIs are safe. Although I will have retired by then anyway.
BV
Even the 10% will still need to learn to fly so jobs for QFIs are safe. Although I will have retired by then anyway.
BV
