AFPS (Lifetime Allowance).
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Government will use the smoke of Covid to slash and burn across the board. The danger to Sqn Ldrs now is that if they bang out having used up, say, ‘just’ 75% of an already reduced LTA, they still have the prospect of ten/twenty years or so accumulating benefits in a DC scheme for an airline (etc).
I can’t see them pushing through another deep LTA cut, it will cause outrage and unrest at a time when government needs calm. Especially so soon after Sunak froze it for five years (and after Covid started). They will look inept (even more so than usual). I do rather quite like the idea of tanks parked, literally, on the Treasury lawn though.
I can’t see them pushing through another deep LTA cut, it will cause outrage and unrest at a time when government needs calm. Especially so soon after Sunak froze it for five years (and after Covid started). They will look inept (even more so than usual). I do rather quite like the idea of tanks parked, literally, on the Treasury lawn though.
Last edited by Al R; 21st Jun 2021 at 08:39.
Al R
My wife does pay tax and earns circa £20K - I have paid in £14400 and the tax relief takes that up to just shy of £18K.
If she doesn’t pay tax, the most you can contribute is £2880 a year before tax (which equates to £3600 a year after tax relief is applied). If someone makes £14400 a year in what is referred to as ‘relevant income’, then they can consider contributing (or a spouse can, on their behalf) £11520 to be topped up by tax relief to £14400.
First post so please be gentle!
I'm leaving. I have done the JPA bit, and am now sorting out various items to attend to. I have not done the FAR bit, but have a feeling my situation is slightly different.
I'm 15/05 and will have an option to return to 05 plus minimal time on 15 (less than 12 months).
My pension pension at 65 should be circa £41k plus whatever CPI is added in the meantime. I think there are a couple of informed posters here that may have an answer in their stride, ref the LTA.
I will receive an EDP lump sum on exit, and another one at SPA. Do both of them get added into the mix for the dreaded BCE at age 65? Happy to take direction to a publication, and still have access to a work machine, but I have a feeling the LTA is going to be an issue if 2 X lump sums are taken in to the equation.
To date no letter on AA forays, so on paper I feel clean, but the only examples I can find include a single LS at age 55.
I'm leaving. I have done the JPA bit, and am now sorting out various items to attend to. I have not done the FAR bit, but have a feeling my situation is slightly different.
I'm 15/05 and will have an option to return to 05 plus minimal time on 15 (less than 12 months).
My pension pension at 65 should be circa £41k plus whatever CPI is added in the meantime. I think there are a couple of informed posters here that may have an answer in their stride, ref the LTA.
I will receive an EDP lump sum on exit, and another one at SPA. Do both of them get added into the mix for the dreaded BCE at age 65? Happy to take direction to a publication, and still have access to a work machine, but I have a feeling the LTA is going to be an issue if 2 X lump sums are taken in to the equation.
To date no letter on AA forays, so on paper I feel clean, but the only examples I can find include a single LS at age 55.
EDP is not pension. It is provided for in a completely different Statutory Instrument. What LTA is looking at is what your pension provides. If you are a member of the Society, email us on [email protected] and a member of the Pensions Team will answer any questions you might have.
Atlas, the FPS is the way ahead, though I don’t think they’ve fully understood your question here.
Below is a link to an RN booklet. EDP is nothing to do with your LTA, but the booklet states your lump sums are based on your preserved PENSION, so you are correct, your are extremely likely to break the present LTA.
If you have a look at some of the personal pension providers they are quite calm about breaching it, it is the excess that attracts the extra 25% tax, if you take it as income. You’ll be a higher rate taxpayer now, so it’s only an extra 5% than what you lose now- if you can manage to keep your pension in the 20% bracket!
Ive had to do similar calculations, having left and made a maximum effort on my personal pensions; just get used to the figures… and join the FPS!!
https://www.whiteensign.co.uk/blog/a...fps-05-afps-15
Below is a link to an RN booklet. EDP is nothing to do with your LTA, but the booklet states your lump sums are based on your preserved PENSION, so you are correct, your are extremely likely to break the present LTA.
If you have a look at some of the personal pension providers they are quite calm about breaching it, it is the excess that attracts the extra 25% tax, if you take it as income. You’ll be a higher rate taxpayer now, so it’s only an extra 5% than what you lose now- if you can manage to keep your pension in the 20% bracket!
Ive had to do similar calculations, having left and made a maximum effort on my personal pensions; just get used to the figures… and join the FPS!!
https://www.whiteensign.co.uk/blog/a...fps-05-afps-15
I think you’ll be close on those numbers and obviously you’ll be part of the McCloud shenanigans and so at this range it is hard to work this out exactly. Also, it will depend on your age, how index linking over age 55 and also the split of your 05/15 from that McCloud judgement.
All of the information that you need is here: https://www.gov.uk/guidance/pensions...erans#taxation and in particular you need to read the taxation bits: https://www.gov.uk/guidance/pensions...erans#taxation
Now the LTA is £1,073,100 but is frozen until the FY25/26 tax year. That means that as you index link you will slowly rise towards that LTA limit at the BCE. You mention age 65 for that, but don’t forget that state pension age (SPA) is also nudging upwards over time. By 2028 it will be age 67.
So, in summary, I think you’ll be close, it probably won’t affect you that significantly as it will only tax the amount that breaches the £1,073,100. Whilst your lump sum will be a part of the final calculations it is only taxed at 55% when it breaches more than 1/4 of the total LTA - so I doubt your combined lump sum is £268,275 or more. So really you might be paying 25% on the very small amount over the 20x pension and lump sum over the £1.073M threshold which won’t be much at all in all likelihood.
Well that’s my take on it having read all of the stuff at the links above. Obviously the FPS is there to help you if you don’t want to read it, or if you want a valued second opinion. After all £42 isn’t a huge amount of money!
All of the information that you need is here: https://www.gov.uk/guidance/pensions...erans#taxation and in particular you need to read the taxation bits: https://www.gov.uk/guidance/pensions...erans#taxation
Now the LTA is £1,073,100 but is frozen until the FY25/26 tax year. That means that as you index link you will slowly rise towards that LTA limit at the BCE. You mention age 65 for that, but don’t forget that state pension age (SPA) is also nudging upwards over time. By 2028 it will be age 67.
So, in summary, I think you’ll be close, it probably won’t affect you that significantly as it will only tax the amount that breaches the £1,073,100. Whilst your lump sum will be a part of the final calculations it is only taxed at 55% when it breaches more than 1/4 of the total LTA - so I doubt your combined lump sum is £268,275 or more. So really you might be paying 25% on the very small amount over the 20x pension and lump sum over the £1.073M threshold which won’t be much at all in all likelihood.
Well that’s my take on it having read all of the stuff at the links above. Obviously the FPS is there to help you if you don’t want to read it, or if you want a valued second opinion. After all £42 isn’t a huge amount of money!
Hey Atlas. Save yourself £42 and contact the good folks at Kentigern House in Glasgow who should be able to help with your calculations for free. The team there are obliged to provide you with free and impartial help, as a tax payer you've already paid for these people and their helpline, so use them. They'll let you know where your LTA currently is and how far you're likely to breach it. However, from the info you've provided there seems to be way too many variables for any one to give you a hard and fast figure, (whether you pay them or not), final salary, additional income, other pension pots, not to mention the McCloud remedy.
Presumably with increasing returns on investments, the ‘20’ multiple on Forces pensions will soon be reduced, effectively increasing the amount we can accrue before breaching the lifetime allowance. Your thoughts Al R?
Presumably with increasing returns on investments, the ‘20’ multiple on Forces pensions will soon be reduced, effectively increasing the amount we can accrue before breaching the lifetime allowance.
When the LTA was first introduced in Apr 06 it was quite generous at £1.5M. This gradually increased to £1.8M by 2010/11 tax year, so in earlier years it only tended to affect a few very wealthy individuals. But in Apr 12 the government introduced the first of a series of reductions in the LTA threshold starting with the reduction to £1.5M in 2012 and ending with the LTA threshold of £1M in 2016.
In 2015 the Govt announced that there would be no further reductions in the LTA after the planned reduction to £1M in Apr 16, but that the LTA would in fact benefit from annual increases each year from Apr 18 – these increases would be linked to increases in the Consumer Prices Index (CPI) inflation rate. However, a pressing need to increase the flow of money into the Govt, to fund central government spending on things like the NHS and education, has seen the LTA (amongst other tax allowances) being frozen at its current level of £1,073,100 until at least 5 April 2026.
The freezing of the LTA at current levels will inevitably lead to more and more people finding themselves having to pay an excess LTA charge at some point. So no need to drop the 20x multiplier as inflation, the LTA freeze and wage increases are naturally taking more and more of us into Annual Allowance (AA) and LTA. Also, don’t forget that this affects EVERYONE, not just the HM Forces, so any further changes are likely to be highly unpopular and lead to even more early retirements and people leaving high paid roles for lower paid roles - just look at the Doctors, Surgeons and Judges that are leaving and why if anything I can see a slight relaxation in future when the ‘brain drain’ bites: https://managementinpractice.com/you...-jobs-say-mps/
One way of avoiding the LTA is to divorce your spouse and get a pension sharing order such that your remaining pension value falls below the threshold. Could easily save enough in tax to offset the immediate costs, which might tip the balance for some! In the long run it would depend how much of your pension you actually expect to be able to spend 
I very much doubt they will change the 20x multiplier and this is why…
When the LTA was first introduced in Apr 06 it was quite generous at £1.5M. This gradually increased to £1.8M by 2010/11 tax year, so in earlier years it only tended to affect a few very wealthy individuals. But in Apr 12 the government introduced the first of a series of reductions in the LTA threshold starting with the reduction to £1.5M in 2012 and ending with the LTA threshold of £1M in 2016.
In 2015 the Govt announced that there would be no further reductions in the LTA after the planned reduction to £1M in Apr 16, but that the LTA would in fact benefit from annual increases each year from Apr 18 – these increases would be linked to increases in the Consumer Prices Index (CPI) inflation rate. However, a pressing need to increase the flow of money into the Govt, to fund central government spending on things like the NHS and education, has seen the LTA (amongst other tax allowances) being frozen at its current level of £1,073,100 until at least 5 April 2026.
The freezing of the LTA at current levels will inevitably lead to more and more people finding themselves having to pay an excess LTA charge at some point. So no need to drop the 20x multiplier as inflation, the LTA freeze and wage increases are naturally taking more and more of us into Annual Allowance (AA) and LTA. Also, don’t forget that this affects EVERYONE, not just the HM Forces, so any further changes are likely to be highly unpopular and lead to even more early retirements and people leaving high paid roles for lower paid roles - just look at the Doctors, Surgeons and Judges that are leaving and why if anything I can see a slight relaxation in future when the ‘brain drain’ bites: https://managementinpractice.com/you...-jobs-say-mps/
When the LTA was first introduced in Apr 06 it was quite generous at £1.5M. This gradually increased to £1.8M by 2010/11 tax year, so in earlier years it only tended to affect a few very wealthy individuals. But in Apr 12 the government introduced the first of a series of reductions in the LTA threshold starting with the reduction to £1.5M in 2012 and ending with the LTA threshold of £1M in 2016.
In 2015 the Govt announced that there would be no further reductions in the LTA after the planned reduction to £1M in Apr 16, but that the LTA would in fact benefit from annual increases each year from Apr 18 – these increases would be linked to increases in the Consumer Prices Index (CPI) inflation rate. However, a pressing need to increase the flow of money into the Govt, to fund central government spending on things like the NHS and education, has seen the LTA (amongst other tax allowances) being frozen at its current level of £1,073,100 until at least 5 April 2026.
The freezing of the LTA at current levels will inevitably lead to more and more people finding themselves having to pay an excess LTA charge at some point. So no need to drop the 20x multiplier as inflation, the LTA freeze and wage increases are naturally taking more and more of us into Annual Allowance (AA) and LTA. Also, don’t forget that this affects EVERYONE, not just the HM Forces, so any further changes are likely to be highly unpopular and lead to even more early retirements and people leaving high paid roles for lower paid roles - just look at the Doctors, Surgeons and Judges that are leaving and why if anything I can see a slight relaxation in future when the ‘brain drain’ bites: https://managementinpractice.com/you...-jobs-say-mps/
kintyred
NO! (Sorry to shout). This would lower the threshold that you get the 55% and 25% LTA tax, so more people would end up paying it. You need the multiplier to increase as it shifts the threshold to a bigger number and so fewer get taxed - a bit like having a bigger tax free allowance for income tax.
I hope that makes sense?
if the multiplier were reduced to reflect higher returns on private pension investments surely this would have the effect of improving armed forces pensions wrt the lifetime allowance? Eg. £50000 x 15 = £750000 as opposed to £50000 x 20 = £1000000.
I hope that makes sense?
My brain hurts! I thought that the govt assumed a notional pension pot for service personnel that amounted to 20 times their pension and that if that notional value exceeded the lifetime allowance then that triggered an additional tax burden. By reducing the multiplier, the assumed value of the pot would decrease thus reducing the chance of exceeding the LTA.
Thanks for all the replies. Plenty to think about including taking my pension early to reduce the lump sum and the actual pension itself, whilst on the flip side accepting an EDP with the reduced pension until age 65. I'm in no rush, and should the LTA be an issue (and it can't just be me) then some professional advice will be needed, not by FPS - as they don't venture out of their swim lane.
kintyred - for AFPS there is no pension pot. Our pensions are written into UK Law as effectively an IOU. Think of it a bit like this:
So, as we qualify for our pension the Government “promise to pay” it from the UK’s coffers. They can’t wriggle out of it unless - 1. We fail to meet the requirements within the Pension Law. Or 2. The country goes completely bankrupt, which even Kwasi couldn’t manage!
Now, the lifetime allowance (LTA) looks at what your pension is when it is taken - known as a Benefit Crystallisation Event (BCE) - for both annual pension and lump sum(s). As long as those lump lump sums do not exceed 1/4 of the LTA (currently £268,274) then you won’t be due the wicked 55% tax on the lump sum, and also as long as your annual pension, multiplied by 20, does not exceed £1,073,100 (including any lump sums) then you won’t need to pay 25% tax on any amount over the £1,073,100. Now, typically, anyone with a BCE coming up in the next few years with say £120k lump sum and £49k pension then they are likely to get clobbered.
Now your suggestion of reducing the multiplier below the current 20 (let’s say 15) would make things a whole lot worse and likely see people with a £100k lump sum and £40k pension would fall foul of it. So hopefully you can see an increase in the multiplier is what is needed?
LJ
So, as we qualify for our pension the Government “promise to pay” it from the UK’s coffers. They can’t wriggle out of it unless - 1. We fail to meet the requirements within the Pension Law. Or 2. The country goes completely bankrupt, which even Kwasi couldn’t manage!
Now, the lifetime allowance (LTA) looks at what your pension is when it is taken - known as a Benefit Crystallisation Event (BCE) - for both annual pension and lump sum(s). As long as those lump lump sums do not exceed 1/4 of the LTA (currently £268,274) then you won’t be due the wicked 55% tax on the lump sum, and also as long as your annual pension, multiplied by 20, does not exceed £1,073,100 (including any lump sums) then you won’t need to pay 25% tax on any amount over the £1,073,100. Now, typically, anyone with a BCE coming up in the next few years with say £120k lump sum and £49k pension then they are likely to get clobbered.
Now your suggestion of reducing the multiplier below the current 20 (let’s say 15) would make things a whole lot worse and likely see people with a £100k lump sum and £40k pension would fall foul of it. So hopefully you can see an increase in the multiplier is what is needed?
LJ
”…also as long as your annual pension, multiplied by 20, does not exceed £1,073,100 (including any lump sums) then you won’t need to pay 25% tax on any amount over the £1,073,100.”
So it seems to me that the important sum is that your pension multiplied by the multiplier (currently 20) should not exceed £1,073,100. To my thinking if you reduce the multiplier, you can have a higher pension before you hit the LTA….or have I still got it wrong?
So it seems to me that the important sum is that your pension multiplied by the multiplier (currently 20) should not exceed £1,073,100. To my thinking if you reduce the multiplier, you can have a higher pension before you hit the LTA….or have I still got it wrong?
kintyred - ah, I see what you’re saying now. Yes, if they stayed with the same threshold of £1.073M, but reduced the multiplier, then it would in effect allow you to keep more pension. I got confused with the £750k that you mentioned, my apologies.
But going back to your original question:
My bold added. The 20 multiplayer runs across all pensions - it’s not just an AFPS thing - it also works on the actual pension received and not any valuation or “pot”. So, I can’t see it being changed anytime soon, especially as the Govt are taking a tidy sum in taxes from the more wealthy. It’s all about envy and votes, you see… we don’t even have a fair and equitable income taxation system, then why would this be deemed to be deserving of anything different!
But going back to your original question:
Presumably with increasing returns on investments, the ‘20’ multiple on Forces pensions will soon be reduced, effectively increasing the amount we can accrue before breaching the lifetime allowance.
kintyred - ah, I see what you’re saying now. Yes, if they stayed with the same threshold of £1.073M, but reduced the multiplier, then it would in effect allow you to keep more pension. I got confused with the £750k that you mentioned, my apologies.
But going back to your original question:
My bold added. The 20 multiplayer runs across all pensions - it’s not just an AFPS thing - it also works on the actual pension received and not any valuation or “pot”. So, I can’t see it being changed anytime soon, especially as the Govt are taking a tidy sum in taxes from the more wealthy. It’s all about envy and votes, you see… we don’t even have a fair and equitable income taxation system, then why would this be deemed to be deserving of anything different!
But going back to your original question:
My bold added. The 20 multiplayer runs across all pensions - it’s not just an AFPS thing - it also works on the actual pension received and not any valuation or “pot”. So, I can’t see it being changed anytime soon, especially as the Govt are taking a tidy sum in taxes from the more wealthy. It’s all about envy and votes, you see… we don’t even have a fair and equitable income taxation system, then why would this be deemed to be deserving of anything different!
I would be focussed on issue if you leave at the roughly age 40 point as a pilot and go into the airlines though - your company pension may well allow you to reach the LTA before you retire.
I think that the 20 multiplier is based on the returns that a pension pot might be expected to achieve. Obviously, returns over the past 15 years or so (ie since the multiplier was introduced) have been low…I guess that 5% was the norm given the choice of a 20 multiplier. (100% of your pot ‘/, 20 = 5%). With higher interest rates I’d expect higher returns and therefore a lower multiplier. I accept that this would be a change across all public sector pensions, which hopefully the Forces Pension Society and other groups will be pressing for.
I think that the 20 multiplier is based on the returns that a pension pot might be expected to achieve. Obviously, returns over the past 15 years or so (ie since the multiplier was introduced) have been low…I guess that 5% was the norm given the choice of a 20 multiplier. (100% of your pot ‘/, 20 = 5%). With higher interest rates I’d expect higher returns and therefore a lower multiplier. I accept that this would be a change across all public sector pensions, which hopefully the Forces Pension Society and other groups will be pressing for.