Pension Horror - Annual Allowance
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Pension Horror - Annual Allowance
How did this happen?
I’ve just received a letter through the door telling me my ‘Pension Input Amount’ (the first time I have been aware of these three words being used together) is nearly £90000, that the Annual Allowance limit is £40000 and I’m liable for tax on the difference. I’ve had a steady (but far from meteoric) rise through the ranks to OF5 - it’s not as if I’ve been pulling in some tasty six figure bonuses like some in the civilian world.
Is this the same pension trap that is preventing doctors from doing any overtime?
Any advice from the community would be gratefully accepted. Is is best to ‘cough’ for the whole amount in-year or should I accept a permanent reduction to my pension (through this ‘Service Pays’ scheme).
Am I about to face (effectively) big salary reductions for the rest of my career?
Should I press that big PVR button - it might make economic sense?
I’ve just received a letter through the door telling me my ‘Pension Input Amount’ (the first time I have been aware of these three words being used together) is nearly £90000, that the Annual Allowance limit is £40000 and I’m liable for tax on the difference. I’ve had a steady (but far from meteoric) rise through the ranks to OF5 - it’s not as if I’ve been pulling in some tasty six figure bonuses like some in the civilian world.
Is this the same pension trap that is preventing doctors from doing any overtime?
Any advice from the community would be gratefully accepted. Is is best to ‘cough’ for the whole amount in-year or should I accept a permanent reduction to my pension (through this ‘Service Pays’ scheme).
Am I about to face (effectively) big salary reductions for the rest of my career?
Should I press that big PVR button - it might make economic sense?
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How did this happen?
I’ve just received a letter through the door telling me my ‘Pension Input Amount’ (the first time I have been aware of these three words being used together) is nearly £90000, that the Annual Allowance limit is £40000 and I’m liable for tax on the difference.
I’ve just received a letter through the door telling me my ‘Pension Input Amount’ (the first time I have been aware of these three words being used together) is nearly £90000, that the Annual Allowance limit is £40000 and I’m liable for tax on the difference.
Note that you can carry forward any unused allowance from the past three years:
https://www.gov.uk/guidance/check-if...ension-savings
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How did this happen?
I’ve just received a letter through the door telling me my ‘Pension Input Amount’ (the first time I have been aware of these three words being used together) is nearly £90000, that the Annual Allowance limit is £40000 and I’m liable for tax on the difference. I’ve had a steady (but far from meteoric) rise through the ranks to OF5 - it’s not as if I’ve been pulling in some tasty six figure bonuses like some in the civilian world.
Is this the same pension trap that is preventing doctors from doing any overtime?
Any advice from the community would be gratefully accepted. Is is best to ‘cough’ for the whole amount in-year or should I accept a permanent reduction to my pension (through this ‘Service Pays’ scheme).
Am I about to face (effectively) big salary reductions for the rest of my career?
Should I press that big PVR button - it might make economic sense?
I’ve just received a letter through the door telling me my ‘Pension Input Amount’ (the first time I have been aware of these three words being used together) is nearly £90000, that the Annual Allowance limit is £40000 and I’m liable for tax on the difference. I’ve had a steady (but far from meteoric) rise through the ranks to OF5 - it’s not as if I’ve been pulling in some tasty six figure bonuses like some in the civilian world.
Is this the same pension trap that is preventing doctors from doing any overtime?
Any advice from the community would be gratefully accepted. Is is best to ‘cough’ for the whole amount in-year or should I accept a permanent reduction to my pension (through this ‘Service Pays’ scheme).
Am I about to face (effectively) big salary reductions for the rest of my career?
Should I press that big PVR button - it might make economic sense?
Only solution I found was to cash it in and look at potential part time reserve on my own terms, whilst earning decent Wonga as a civvie. Incidentally, many civvies are getting around tax by emigrating to Portugal (https://nomadcapitalist.com/2016/06/...ence-portugal/) where they have a rather nice little tax deal for 10 years of the date you declare residency. I would live guilt free knowing the truckloads of cash HMG are currently incinerating in Brexit preparations. Won’t be my cash they are using.
Last edited by VinRouge; 9th Oct 2019 at 20:02.
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Thank you all so far.
Vin Rouge - I’m not familiar with SCAPE.
It all seems above board - the pack explaining it all has come from the official forces department.
DHP41- yes, the info pack explains I can carry forward unused annual allowances. But they list the years leading up to the ‘trigger’ year and it would seen I’ve been hovering just under that limit for a number of years.
it goes to show, you don’t need to be a 3* to get penalised.
I’m not sure if it was economically sensible to get promoted.
Vin Rouge - I’m not familiar with SCAPE.
It all seems above board - the pack explaining it all has come from the official forces department.
DHP41- yes, the info pack explains I can carry forward unused annual allowances. But they list the years leading up to the ‘trigger’ year and it would seen I’ve been hovering just under that limit for a number of years.
it goes to show, you don’t need to be a 3* to get penalised.
I’m not sure if it was economically sensible to get promoted.
How did this happen?
I’ve just received a letter through the door telling me my ‘Pension Input Amount’ (the first time I have been aware of these three words being used together) is nearly £90000, that the Annual Allowance limit is £40000 and I’m liable for tax on the difference. I’ve had a steady (but far from meteoric) rise through the ranks to OF5 - it’s not as if I’ve been pulling in some tasty six figure bonuses like some in the civilian world.
Is this the same pension trap that is preventing doctors from doing any overtime?
Any advice from the community would be gratefully accepted. Is is best to ‘cough’ for the whole amount in-year or should I accept a permanent reduction to my pension (through this ‘Service Pays’ scheme).
Am I about to face (effectively) big salary reductions for the rest of my career?
Should I press that big PVR button - it might make economic sense?
I’ve just received a letter through the door telling me my ‘Pension Input Amount’ (the first time I have been aware of these three words being used together) is nearly £90000, that the Annual Allowance limit is £40000 and I’m liable for tax on the difference. I’ve had a steady (but far from meteoric) rise through the ranks to OF5 - it’s not as if I’ve been pulling in some tasty six figure bonuses like some in the civilian world.
Is this the same pension trap that is preventing doctors from doing any overtime?
Any advice from the community would be gratefully accepted. Is is best to ‘cough’ for the whole amount in-year or should I accept a permanent reduction to my pension (through this ‘Service Pays’ scheme).
Am I about to face (effectively) big salary reductions for the rest of my career?
Should I press that big PVR button - it might make economic sense?
Anyway, here is a page of step-by-step info on what to do: https://www.gov.uk/government/public...ax-year-201718
Hopefully that helps?
Best, LJ
MOD have put out a guide too. There is a link in this post:The Society has been helping members deal with the implications of Annual Allowance for some time
The post Annual Allowance (aka the Pension Tax) appeared first on Forces Pension Society.
The post Annual Allowance (aka the Pension Tax) appeared first on Forces Pension Society.
Perhaps I have misunderstood, but the annual pension allowance is £40K and you are paying in £90K per year?
I don't even get £40K per year, never mind paying that into a pension.
I don't even get £40K per year, never mind paying that into a pension.
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1.3VStall
With the greatest of respect, those currently serving in the military know (or certainly should do) what OF and OR ranks refer to.
As annoying as it may seem it is actually a very easy way to establish rank equivalence across services and nations.
BV
As annoying as it may seem it is actually a very easy way to establish rank equivalence across services and nations.
BV
This issue has been hugely significant for docs for some time. I've had large bills for the last three years.
Get advice for your situation from a good ifa.
Run the figures through the calculator and see what comes out once your previous years have been taken in to account.
Scheme pays is generally the best option as it reduces your lifetime allowance tax liability and the reduction in pension will reduce your income tax liability once your pension starts. This of course makes the maths too complex for me.
Adding the numbers to a self assessment tax return is straightforward but I would suggest checking them with a hood accountant.
Philosophically I feel happier if I view this as a non contributory pension becoming partly contributary.
This is not just an issue for the very senior. People have had tax letters on promoting to cpl.
Get advice for your situation from a good ifa.
Run the figures through the calculator and see what comes out once your previous years have been taken in to account.
Scheme pays is generally the best option as it reduces your lifetime allowance tax liability and the reduction in pension will reduce your income tax liability once your pension starts. This of course makes the maths too complex for me.
Adding the numbers to a self assessment tax return is straightforward but I would suggest checking them with a hood accountant.
Philosophically I feel happier if I view this as a non contributory pension becoming partly contributary.
This is not just an issue for the very senior. People have had tax letters on promoting to cpl.
Crikey matey, have you been living in a cave? OF-5s have had this for the past 4-5 years and even some OF-4s with odd career profiles and AFPS75/15 pensions too.
Anyway, here is a page of step-by-step info on what to do: https://www.gov.uk/government/public...ax-year-201718
Hopefully that helps?
Best, LJ
I am stunned that anyone above OF4 has not been aware of it or even stung by it already.
Leaving early made the most sense for me. Being taxed on an imaginary future gain figure that your government employer has put into an imaginary pot in imaginary years and being treated like someone trying to reduce tax liability by injecting cash into a pension is just plain bonkers. Applying it to military personnel that may be tied to a RoS, so may not be able to leave and are clearly unable to adjust their virtual non-contributory pension is madness. But here we are, a few years into this creative tax burden and no change of direction from the Treasury. Indeed, the threshold keeps being lowered year-on-year to bring more people into the net.
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Some OF3s plus some SNCOs & NCA have been pulled into this debacle. The FPS have moved from their old position of helping the individual manage the changes to actively campaigning against it.
I am stunned that anyone above OF4 has not been aware of it or even stung by it already.
Leaving early made the most sense for me. Being taxed on an imaginary future gain figure that your government employer has put into an imaginary pot in imaginary years and being treated like someone trying to reduce tax liability by injecting cash into a pension is just plain bonkers. Applying it to military personnel that may be tied to a RoS, so may not be able to leave and are clearly unable to adjust their virtual non-contributory pension is madness. But here we are, a few years into this creative tax burden and no change of direction from the Treasury. Indeed, the threshold keeps being lowered year-on-year to bring more people into the net.
I am stunned that anyone above OF4 has not been aware of it or even stung by it already.
Leaving early made the most sense for me. Being taxed on an imaginary future gain figure that your government employer has put into an imaginary pot in imaginary years and being treated like someone trying to reduce tax liability by injecting cash into a pension is just plain bonkers. Applying it to military personnel that may be tied to a RoS, so may not be able to leave and are clearly unable to adjust their virtual non-contributory pension is madness. But here we are, a few years into this creative tax burden and no change of direction from the Treasury. Indeed, the threshold keeps being lowered year-on-year to bring more people into the net.
VinRouge
To get the AFPS15 return at age 60 as a Sqn Ldr PAS or Wg Cdr you would need to invest ~£3,500/month after tax - that is about £5k/month before tax. So, if you invest £42k a year you will be busting your annual allowance and also bust your lifetime allowance by ~£500k. So I’m not sure where you get your figures from? I got mine by using the Standard Life Pension Calculator: https://www.standardlife.co.uk/c1/pe...alculator.page
AFPS75, AFPS05 and AFPS15 are bloody good pensions and it is one of the main things that people hang around for as a remunerative measure. Can you share how you think your civvy pension pot will be any better or more tax efficient than anyone on AFPS?
To get the AFPS15 return at age 60 as a Sqn Ldr PAS or Wg Cdr you would need to invest ~£3,500/month after tax - that is about £5k/month before tax. So, if you invest £42k a year you will be busting your annual allowance and also bust your lifetime allowance by ~£500k. So I’m not sure where you get your figures from? I got mine by using the Standard Life Pension Calculator: https://www.standardlife.co.uk/c1/pe...alculator.page
AFPS75, AFPS05 and AFPS15 are bloody good pensions and it is one of the main things that people hang around for as a remunerative measure. Can you share how you think your civvy pension pot will be any better or more tax efficient than anyone on AFPS?
What the **** are OF4s and OF5s? Can someone please equate that to military ranks? This is, after all, a military forum!
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VinRouge
To get the AFPS15 return at age 60 as a Sqn Ldr PAS or Wg Cdr you would need to invest ~£3,500/month after tax - that is about £5k/month before tax. So, if you invest £42k a year you will be busting your annual allowance and also bust your lifetime allowance by ~£500k. So I’m not sure where you get your figures from? I got mine by using the Standard Life Pension Calculator: https://www.standardlife.co.uk/c1/pe...alculator.page
AFPS75, AFPS05 and AFPS15 are bloody good pensions and it is one of the main things that people hang around for as a remunerative measure. Can you share how you think your civvy pension pot will be any better or more tax efficient than anyone on AFPS?
To get the AFPS15 return at age 60 as a Sqn Ldr PAS or Wg Cdr you would need to invest ~£3,500/month after tax - that is about £5k/month before tax. So, if you invest £42k a year you will be busting your annual allowance and also bust your lifetime allowance by ~£500k. So I’m not sure where you get your figures from? I got mine by using the Standard Life Pension Calculator: https://www.standardlife.co.uk/c1/pe...alculator.page
AFPS75, AFPS05 and AFPS15 are bloody good pensions and it is one of the main things that people hang around for as a remunerative measure. Can you share how you think your civvy pension pot will be any better or more tax efficient than anyone on AFPS?
The military one can, has been and looks as though it very well could get fiddled with again in the future.
There is no personal military pot. They have already changed the discount rate used within the past 2 years, making it even more unaffordable for MoD who have to fund it. Why was that, and what are the figures for a gash shag line pilot not SO1? And what percentage of the OF5 salary is 90k contribution? Sounds to me they have made a non contributory scheme very much so through the back door.
Last edited by VinRouge; 10th Oct 2019 at 17:15.
VinRouge
How much for ‘a gash shag line pilot’ - well seeing as they would be on PAS Level 30 which is around £80k/year pensionable at age 50(ish) onwards then the figures will be pretty similar. The NCA MAcrs also mentioned, when on PAS which over 95% are, are also at Level 20 PAS when they top out, which is again ~£68k. That is why they may get a pension tax bill - they are borderline and it depends on personal circumstances if you tip over.
As for the AFPS, it is written in UK Law and what you have owned so far is protected by that Law. They cannot change what you have earned, but they can change the pension scheme in the future (within certain bounds - read on). Although, as we have seen in the McCloud case you cannot forcibly change peoples’ pension schemes and only have an Offer To Transfer (like we did for AFPS05). Standby for more news on what that might mean, but it is legal fact that the Government unlawfully moved us all onto a different pension scheme - https://www.ft.com/content/10be07ee-...c-fac8325aaa04 and https://forcespensionsociety.org/new...-armed-forces/ for further info.
Yes, you are correct, there isn’t a ‘pot’ but there is a notional pot, which is where the SCAPE rate comes from. Further, AFPS is a promise written in Law and is like an IOU from the Government or a Bank of England Bank Note - the one that has a written guarantee that states “I PROMISE TO PAY THE BEARER ON DEMAND THE SUM OF ...”
So, I feel you may have made a very unsound decision if you left because you thought that pensions would be better in civilian life - the only way they would be better would be if you were paid about 60% more than your pensionable salary was in the Service.
How much for ‘a gash shag line pilot’ - well seeing as they would be on PAS Level 30 which is around £80k/year pensionable at age 50(ish) onwards then the figures will be pretty similar. The NCA MAcrs also mentioned, when on PAS which over 95% are, are also at Level 20 PAS when they top out, which is again ~£68k. That is why they may get a pension tax bill - they are borderline and it depends on personal circumstances if you tip over.
As for the AFPS, it is written in UK Law and what you have owned so far is protected by that Law. They cannot change what you have earned, but they can change the pension scheme in the future (within certain bounds - read on). Although, as we have seen in the McCloud case you cannot forcibly change peoples’ pension schemes and only have an Offer To Transfer (like we did for AFPS05). Standby for more news on what that might mean, but it is legal fact that the Government unlawfully moved us all onto a different pension scheme - https://www.ft.com/content/10be07ee-...c-fac8325aaa04 and https://forcespensionsociety.org/new...-armed-forces/ for further info.
Yes, you are correct, there isn’t a ‘pot’ but there is a notional pot, which is where the SCAPE rate comes from. Further, AFPS is a promise written in Law and is like an IOU from the Government or a Bank of England Bank Note - the one that has a written guarantee that states “I PROMISE TO PAY THE BEARER ON DEMAND THE SUM OF ...”
So, I feel you may have made a very unsound decision if you left because you thought that pensions would be better in civilian life - the only way they would be better would be if you were paid about 60% more than your pensionable salary was in the Service.
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Some good advice. Thank you.
flyingorthopod - thank you for the advice on scheme pays.
I know that every situation will be different but does anyone have any experience of paying the tax bill each year? How much is it going to cost me to serve until 60?
flyingorthopod - thank you for the advice on scheme pays.
I know that every situation will be different but does anyone have any experience of paying the tax bill each year? How much is it going to cost me to serve until 60?
