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bigduckontax
bigduckontax, Accountant
Category: Tax
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Experience:  FCCA FCMA CGMA ACIS
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I took in July last year a pension from the S Yorkshire Pension

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I took in July last year a pension from the S Yorkshire Pension scheme which they have informed me used 4.90% of my lifetime allowance. I am now eligible to take my civil service pension (I left civil service six years ago) which uses 109.63% of my lifetime allowance if I take it all as pension or 93.96% if I took the full lump sum. I also have an AVC which I have not taken yet but will use up 1.28% of my lifetime allowance if the total remains at £1.25m. I do no understand what the implications of exceeding the allowance would be or how the tax is taken e.g. is it from the lump sum, the pension (if so at what rate?) or both? As a result I feel uncertain how best to proceed to make decisions.
The pension quote refers to protection entitlement from HMRC. I have never been informed of the need to do this and looking at the HMRC website cannot ascertain what would determine whether I was eligible to apply for protection now and if I did so whether I have to do this before I take my pension or what the implications of such protection are? So again I am unable to find the information I need to make decisions.
The other option that I do not understand but wonder if it makes sense is to take all the lump sum available and either purchase property to generate rental income or reinvest it in civil service pension or into a pension for my husband but again do not see how best to make decisions
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.
This is a complex area and a summary is available from The Money Advice Service viz:
'Any amount over your lifetime allowance that you take as a regular retirement income – for instance by buying an annuity – attracts a lifetime allowance charge of 25%. This is on top of any tax payable on the income in the usual way.
For defined contribution pension schemes, your pension scheme administrator should pay the tax to HMRC out of your pension pot and use the remaining 75% of your pot to provide a pension or purchase an annuity.'
However, I think it would be to your advantage to read the whole advice which you can find here:
https://www.moneyadviceservice.org.uk/en/articles/the-lifetime-allowance-for-pension-savings
It is a good read for a wet afternoon.
There is a possibility of an application for protection [same source], but there are, needless to say restrictions:
'Individual Protection 2014 (IP2014) is only available if the value of your pension savings on 5 April 2014 is over the new limit of £1.25 million.
If you have applied for protection in the past on other occasions when the lifetime allowance was reduced, you might not be eligible to apply for protection again now.'
If you can apply to protect this gives you up to £1.5 million which might ease the situation.
Are you a member of a Trade Union? If so, they may well be available for advice on an impartial basis. I must say the attitude of your accountant does not appear to have been particularly helpful. Your local Citizens' Advice Bureau might well have someone knowledgeable on tap too.
I do hope I have opened a few doors for you and shown you a way ahead. A 25% grab by the government is to be avoided, if possible.
Customer: replied 2 years ago.

Keith

Thanks for this steer to where to find information which I have now scanned and it is helping a bit but my specific questions remain unclear and it would be great if you could clarify further. . I am still not clear whether my lump sum will be subject to tax if the lifetime allowance is exceeded - initial question: how the tax is taken e.g. is it from the lump sum, the pension (if so at what rate?) or both .

I am not aware that any protection has ever been applied and so assume that it will be possible to apply for individual protection. However please can you clarify from my original question whether I have to apply and get a response before I take my pension?

Looking at the form I had not taken any pensions before April 2014 and have no outside UK pension arrangements so it looks like I only need to complete the section C: uncrystallised amount in uk pension schemes at 6 April 2014. However how do I calculate that figure?

Sadly as I was not a member of the civil service union when in post I cannot now apply and access their advice.

thanks Hilary

Expert:  bigduckontax replied 2 years ago.
The lump sum itself is not taxed until you put the pension into issue by for example buying an annuity. If you are in a defined contributory pension scheme the administrator of the scheme will handle and deduct any amount needed. If you take a lump sum the surplus over the lifetime allowance is taxed at a mere 55% [ouch], if taken as income only 25%.
You need to apply for protection, if you can do so, as soon as possible and before these pensions come into issue.
To calculate the figure you will have to go the the administrators of the various schemes to obtain a value.
Customer: replied 2 years ago.

Civil service and the S Yorkshire Pensions are defined benefit scheme. I want to take £100K of the £249K lump sum available and then take the rest as pension. If I did this without protection would both lump sum and pension be subject to tax? If I use the lump sum to help buy a house is that ok?

Is it the case that the whole lump sum and the whole pension are subject to tax at 55% and 25% respectively?

If the AVC remains uncrystallised paid does the amount of tax to be paid have to wait until that is taken?

Presumably I need to ask for the valuation of the uncrystallised pension amounts as at 6 April 2014 from each of the pension providers and for my AVC? Would CAB or who else (happy to pay) provide assistance with completing the forms and deciding on the most appropriate balance of lump sum and normal tax payable after that?

thanks Hilary

Expert:  bigduckontax replied 2 years ago.
It is only the surplus over the Lifetime Allowance which suffers the tax.
Without the full data of the size of your pension pots it is difficult to advise, but from what you said in your original question, Hilary, it seems to me that protection is essential. You must seek valuations of your pots as a matter of urgency to see if you need protection.
The CAB might have someone well versed in this area, but it is not guaranteed. You would have to investigate with your local one. Alternatively an Independent Financial Adviser might be able to assist.
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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.

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