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bigduckontax, Accountant
Category: Tax
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I retired January 7th 2014. My NHS Pension is payable as of

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I retired January 7th 2014. My NHS Pension is payable as of my 60th birthday which was at the beginning of this month. I also have pension funds with Wesleyan and a SIPP with Hargreaves Lansdown. I hold a lifetime allowance protection certificate which will become void if I make any contributions to my pension fund after April 2014. My erstwhile employer has now discovered that payroll miscalculated the contributions due in October 2012 (sic) when some sort of backpay was given. The question is whether I can make that good without losing the lifetime allowance protection. NHS Pensions don't seem to know. The missing contribution only represents at most a month's service so potentially it is better to keep the lifetime allowance and lose the month's service.
Hello, I'm Keith and happy to help you with your question.
I would submit that as this is in respect of the 11/12 tax year you need not be over concerned. Furthermore you are not making any contributions to your scheme.In my case a year after all annuities, pensions etc were in issue one of my insurers came up with a relatively small sum following a miscalculation. It did not alter the price of cheese as my old boss was wont to say. Here is Hargfreaves Lansdowne's advice on the subject:
Whenever you take benefits from a pension, you use up a
percentage of the lifetime allowance. This process can be referred
to as a Benefit Crystallisation Event (BCE). For example, a pension
fund worth £125,000 from which you take benefits in 2014/15 will
use up 10% of the lifetime allowance.
Each time your pension is measured against the lifetime
allowance you will receive a certificate showing the percentage
of the standard lifetime allowance this has used (unless you have
fixed or individual protection – see page 2). Unless you hold
lifetime allowance protection, using up more than 100% of the
standard lifetime allowance will result in a tax charge.'
You will note if refers to the use of the lifetime allowance. I do not feel that you have anything to worry about, particularly if your pension pot is below the limits recently imposed.
Customer: replied 3 years ago.

The difficulty is that my NHS Pension is valued at approx. 23 x £39000 (definitive figures not yet supplied by NHS Pension) i.e c. £900,000. Current value of private funds £290k. These are not yet in drawdown and probably will not be for at least a couple of years by which time I should be over the current £1.2m but not the old £1.5m allowance. To pay 40% of value over £1.2m is potentially very expensive.

NHS Pension suggestion was to deduct the arrears from my lump sum but that looks very like a payment in 2014 to me. I know I can submit a case to HMRC that the payment belongs in 2011/2 (likely triggering a payout by them as it is tax deductible) but given that I need to make a decision very shortly and getting an agreement from HMRC likey takes months, what confidence can i have that the decision goes my way?

How can a deduction from a lump sum to which you are entitled anyway under current pension rules, ever be construed as a payment to you? I regret that you must either wait for a ruling or consult a trusted, local professional to handle your case for you. I appreciate that potentially a great deal is at stake here, but if the errors are within the system then those operating that system would be liable and that would be extremely expensive for them to remedy. AS far as I can ascertain from general reading these lifetime allowance protection certificates are constantly being revised in individual's cases and yours would be no different.
Customer: replied 3 years ago.

Thanks Keith. I am not sure I am a lot further forward but thanks for taking the time to think about it. I was hoping there might be case law that would give a clear indication of what should happen: if two of us have found out after the event that payments have been in error, the chances are high that this is not a unique problem. I have it in the back of my mind that I saw a legal ruling not long ago that said a defendant could not be held liable for change in tax liability only for the original payment due but I am not a lawyer and sadly have reached an age where my brain sometimes fills in gaps it thinks shouldn't be there, not necessarily correctly. Thanks again

At this stage it all looks extremely woolly as the whole lifetime protection caper beds in. I am pretty sure that these sorts of adjustment are so commonplace as not to arouse any comment. In the great scheme of things, it's peanuts.
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