Tax free lump sum may be scrapped
 

Front page of the Times yesterday 210902 had an eighth of a page article on the Inland Revenues review team proposal to either scrap or tax any pension gratuity. Tom Ross, a pensions expert at Aon Consulting said: "it would not be a fantastic suprise". It might not be a fantastic suprise but it would certainly make people think about staying for their "Gratuity". Has anyone else got any further info?

Sorry, not got any new info, first I have heard of it. Just a couple of thoughts from a bear with a very small brain, if it does happen. First of all ironic that MOD have just introduced a system of "bungs", sorry financial incentives, for aircrew to stay just to have prospect of Treasury puting in place great incentive for people (all trades) NOT TO STAY! Loss/tax of gratuity worth £60,000 plus, depending on rank/time in job, big incentive not to stay to 55. Secondly, if tax/scrap of gratuity was introduced for people already serving, as opposed to new entrants, would you have legal grounds to sue MOD, on basis tax free gratuity was one of reasons for joining/remaining and part of your terms of service (European court here we come again!!)?

That nice Mr Brown/Treasury trying to claw money in any way they can without touching the sacred cow of current income tax rates!!

loss of Tax free gratuity
 

Having recently left the service and attended the Pensions brief given to service leavers. The retd Lt Cdr informed us that the gratuity and pensions were under review and that the tax man was wanting his slice. He said, what was most likely was that the voluntary commutation (the normal gratuity is compulsory comutation) would be withdrawn. This means that you would still get your basic gratuity but would not get the additional tax free amount released by commutation. Thereby taking home a larger pension which would of course be taxed and would increase the tax paid on anything else that you earn. The big downer is that there are no reserved rights to voluntary commute your pension!

Are there not still reserved rights for service before (?) 1975. At least this might be a suggestion which Airships would oppose.

Airship=more pay=more pension=more gratuity=more tax if gratuity taxed. Nah, never happen mate. Cynical, moi?

I sincerely hope that this is just a rumour! But I'm going to get a personal illustration for immediate PVR from the pensions people down at Binnsworth tomorrow - the pins are now definitely out on the black and yellow handle.

Just so that I know whether it's worth staying in what used to be an air force much longer.....

I fear I'm with you BEags, Binnsworth is an early stop on return to cooler climes.........:(

Beags Old Love, you've been threatening to pull your 'Black and Yellow' since I first came across this site 3 years ago....

I dare you, I double dare you etc etc (Pulp Fiction moment)

;-)

GA

People seem to be assuming that this is another "gotcha" aimed at the services.

In fact, the rumours about this measure are nothing to do with the services and everything to do with the Treasury ending the tax-free status of every gratuity from any pension, whatever job you are in.

Its great to be British

No, not aimed at the Services, but the Services are in a slightly different position - particularly now when El Presidente Antonio is seeking their help to establish himself as an international Statesman, perhaps at the cost of service (not politician's) lives. THAT's why we are a special case.

It is also a lot of wonga for our military lords and masters too, who do not have the alternatives/additions of share options, company cars, free/cheap travel in retirement etc.

Example: after 2002 Pay Review (Top Salaries, not AFPRB), the single-Service chiefs (1SL/CGS/CAS) get around £130K - not very much I happen to think for what they do, considering there are no share options etc etc.

Their pension (slightly different rules again) is 50% of salary, so that's £65K. Gratuity is normally 3 times pension (we will for simplicity ignore reserved rights to life commutation in respect of service before 6 Apr 80), so gratuity would be £195K.

At present this, like all service gratuities, is tax free. If taxed (and assuming Smiler Brown did not increase top rate beyond 40%), that would cost each chief £78K out of his own pocket to the taxman.

And I do really have the confidence that they would do their best to argue that special case for the Services!

Or am I naif.............

Anyone know when this is likely to happen? I'm with BEages on this one, my pension is earnt but I may have to PVR sooner than I planned if this is true. Watch this space if they get this one through, I'm sure they'd see more than a few go at a very inoppertune moment. I know a lot of SNCOs (backbone of the RAF so some would have us believe) for whom this would be the straw that breaks the camels back! Still at least some of the lucky few who received bungs to stay could use the wad to lessen the effect, thats if it isn't already parked in their garage!

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It's dificult to soar with eagles when you work for turkeys!

I am not sure that anyone could react in time to PVR and get their Gratuity tax free. This move would most likely be announced as part of the annual budget.

The Mail on Sunday had an article about it last weekend. It was not only the possibility of taxing a gratuity that is under discussion. There were other options such as leaving the lump sum tax free but forcing you to purchase an annuity with it also discussed.

Again I would stress that this will affect the whole country. The effects of their Airships lobbying would have zero effect.

Further to my last try:

http://www.thisismoney.com/20020926/pn53545.html

Good link Stan - thanks

gives rise to further problems as it speaks about a "pension fund" which we do not have per se, as our pension is non-contributory. Although I guess an equivalent figure could be arrived at, the system would have to up-front with the money in order to make us buy an annuity.

If it were across the board it's despicable. Speaking personally, having served 30 years + I would be really p*ssed off to have the goalposts moved within a couple of years of collecting my wad! I also know of a number of people who have taken out loans against the expectation of the gratuity - they would be really b*ggered.

Never mind PVRing in anticipation - my papers would go in as a matter of principle if such a measure were to be announced. At least then I could go public with my disapproval.....:(

I'm in the same boat, I've done 30 years and my financial plans for the future are based around what I thought I was entitled to!!! Looks like the free ATPL and **** off option will have to be used after all.

The nice people at Innsworth have now provided me with an illustration. As I'm on pre-1980 terms, were I to commute the max under Life Commutation the 2 options are:

1. PVR to be out on 31 Mar 03: Terminal grant of £61380 plus max LCS of £43930 makes £105310 plus an annual pension of £17740.

2. Hang around to NRD, risking the thieving Labour government taxing the LCS commutation and terminal grant: TG of £65900 plus max LCS of £40840 makes £106740 plus an annual pension of £19270.

The question is, therefore, is it worth the extra £1430 lump sum and £1530 p.a. pension to stay until NRD, against the risk of the total lump sum being hacked into by the taxation ideas of this so-called government?

Now have the ATPL/IR in the back pocket and access to £100K assured. I will need some pretty robust convincing to stay - and this is nothing at all to do with QoL or other service issues - whilst Gordon-the-greedy hangs his Damoclean sword over our heads. And quickly......