Tax on pensions

Bogof_Babe

My husband has taken a pension from his last employer, as he was within their early retirement age bracket and his job was being transferred to another firm. It's only a couple of hundred £ a month, but he took it in case the pension scheme folded up before he reaches 65 and he lost the lot. He is continuing to work for the company that his job was transferred into, at the same pay, terms etc.

Anyway the first pension payment (with a month's arrears due to the delay in sorting it out) was made at the end of Feb, and they took a nominal amount of tax off, and printed a phone number for the tax office, advising him to inform them of his new situation. He did this and they sent a form, which he completed detailing all his income from all sources, and returned about 3 weeks ago.

The next pension payslip has just arrived, and they have not deducted any tax at all. Might this be because they are still calculating what to deduct? I'd have thought they would have put him on emergency tax code if this was the case?

My question really is, are employment pensions considered taxable just like any other income, or is there some sort of special arrangement which makes his small pension exempt? I would like to know, so that we can budget, and also we don't want to be hit with a big deduction in due course when they've got their act together.

Debt_Free_Chick

Bogof_Babe wrote:

.

My question really is, are employment pensions considered taxable just like any other income, or is there some sort of special arrangement which makes his small pension exempt? I would like to know, so that we can budget, and also we don't want to be hit with a big deduction in due course when they've got their act together.

Taxable like any other earned income. The problem is with the tax office. The pensions department can only deduct tax in accordance with the code issued by the tax office. You could get onto them and try and speed things up a bit, but they are usually quite efficient with coding notices.

Basically, all of the pension should be taxed as any personal allowances will already be applied to the code for the job. So you should bank on 22% or 40% of the pension being tax (depending on his total income). Once the right coding is issued, it's likely that all the owed tax will come out of his pension in one go, so you might want to budget for this.

HTH

Debt_Free_Chick

My husband has taken a pension from his last employer, as he was within their early retirement age bracket and his job was being transferred to another firm. It's only a couple of hundred £ a month, but he took it in case the pension scheme folded up before he reaches 65 and he lost the lot. He is continuing to work for the company that his job was transferred into, at the same pay, terms etc

This is very interesting as, strictly speaking, he should not have been allowed to take his pension. The Inland Revenue rules are such that you must retire from the job to which the pension relates. It seems that your husband has not retired from that job ... it's been transferred to another company, but he is still doing the job that the pension related to.

There is no system for checking this, so no need to be alarmed. I don't know of a case where anyone has ever been "found out". All that should have happened is that the pensions department should have declined his application for an early pension. Apaart from that, there are no other checks that the Inland Revenue rules are being complied with, so nothing to worry about ... but thought it might be interesting for you and others to know.

Regards

Pal

The Inland Revenue rules don't talk about people doing a "job", but instead talk about "employment". You have to leave employment with the company running your pension scheme in order to take your benefits early (unless you can prove that you are doing an entirely different "job" but that is another thread).

The TUPE transfer of Mr Bogof's job from one company to another effectively terminates his employment with his original company. As a result he becomes a deferred member of the pension scheme that he left behind and can take his benefits early if he wants.

Debt_Free_Chick

Pal wrote:

The Inland Revenue rules don't talk about people doing a "job", but instead talk about "employment". You have to leave employment with the company running your pension scheme in order to take your benefits early (unless you can prove that you are doing an entirely different "job" but that is another thread).

The TUPE transfer of Mr Bogof's job from one company to another effectively terminates his employment with his original company. As a result he becomes a deferred member of the pension scheme that he left behind and can take his benefits early if he wants.

Pal

Sorry, but it doesn't. The whole point about TUPE is that the contract is not terminated. It's transferred to the new company. He has been continuously employed under the same contract of employment. If the sale of the first company was a share sale i.e. the new company bought the entire shares of Company A, then he is actually still working for the same company. If the sale was an asset sale, then the new company becomes his employer, but under the original contract of employment.

In any event, where there is a transaction of this nature, the Inland Revenue treat the two jobs as "associated".

His status in the pension scheme is a red herring. As TUPE does not apply to his pension rights, then he may well be a deferred pensioner in the old scheme. But that's irrelevant, as he is still in the employment to which that scheme relates.

Bogof_Babe

Oh dear, I thought it might be complicated. The situation is that the whole department (transport) of the manufacturing company he previously worked for has been hived off to a specialist transport company.

Everyone affected has done the same, if they were in the right age bracket - nearly all the lorry drivers, and half the office staff. The pension payer is a multi-national major company quoted on the stock exchange, so I would have thought they'd know what they were doing.

Many thanks for your input, both of you (I will tick your "thanks" boxes ) and if you have any further thoughts please do keep 'em coming. Cheers .

Debt_Free_Chick

Babe

Don't worry about my comments. Very many pensions departments make the same mistake ... or they could have got a concession from the Inland Revenue (doubtful).

In any event, the rules are changing in April 2006 so everyone will be able to take their pension (from age 55) and carry on in the same job. So I really don't see anyone checking on a rule that will vanish in 13 months time. Please ...ignore it. It's just one of those technical pension issues that us pension nerds like to debate from time to time

And the tax will correct itself, but do keep an eye on it to make sure your husband gets a Notice of Coding soon.

Bogof_Babe

Apologies - replying to myself but I think this afterthought is worth a separate post.

They initially asked if they could take a redundancy package, but were told they couldn't, as they still had jobs with the same terms and conditions, which was agreed as part of the takeover contract. However under their new employment, things could be changed in the future, and diverge from the employees continuing at the original firm, e.g. there is not the same obligation to match pay increases, holiday entitlements etc.

Surely if a company effectively dumps part of its workforce, they are obliged to either make provision for them to enjoy the same benefits ongoing, or they consider they have terminated their employment and any responsibility for them, which makes them pensionable (subject to age) ex-employees?

Bogof_Babe

(Oops doing it again - you overtook me!)


Okay DFC, thanks again and we will wait and see what happens! No wild spending spree for me yet then...:rotfl:

Incidentally I've just checked and his tax code is showing the same on both pension slips, but is different on his wage packet . Madness!!!

Pal

Debt_Free_Chick wrote:

Pal

Sorry, but it doesn't. The whole point about TUPE is that the contract is not terminated. It's transferred to the new company. He has been continuously employed under the same contract of employment. If the sale of the first company was a share sale i.e. the new company bought the entire shares of Company A, then he is actually still working for the same company. If the sale was an asset sale, then the new company becomes his employer, but under the original contract of employment.

In any event, where there is a transaction of this nature, the Inland Revenue treat the two jobs as "associated".

His status in the pension scheme is a red herring. As TUPE does not apply to his pension rights, then he may well be a deferred pensioner in the old scheme. But that's irrelevant, as he is still in the employment to which that scheme relates.

Sorry to disagree (I'm not but you get my point )

I agree regarding a share sale - the contract of employment remains the same so, in theory at least, nothing changes. The Pension Scheme would also transfer, or a new scheme would need to be established that fulfills the requirements of the employment contract.

But TUPE is about a new company being required to protect the employment rights of staff being transferred when their contract of employment no longer applies because they no longer work for that company. The new company has to comply with the original contract terms, but the contract itself is null and void and employment with the original company has ended. If the contract still applied there would be no need for TUPE.

And irrespective, as you say, pension rights do not currently transfer under TUPE. As a result, employment has ended with the first company and the employee is a normal deferred member, entitled to take his benefits whenever they like within the scheme rules.

The Inland Revenue definition of "Associated Employments" only applies if the companies involved are "Associated Employers". These are defined as "close" companies which either control each other or are controlled by a common third party.

Appendix 1 of the practice notes that you are no doubt about to dig through to prove me wrong!

P.s. Have a thanks! You have just raised a very interesting point on a piece of work I am currently working on.

Pal

Bogof_Babe wrote:

Surely if a company effectively dumps part of its workforce, they are obliged to either make provision for them to enjoy the same benefits ongoing, or they consider they have terminated their employment and any responsibility for them, which makes them pensionable (subject to age) ex-employees?

The TUPE (Transfer of Undertakings, Protection of Employment) regulations do exactly that, protect employees benefits on the transfer date. They do not currently apply to pension benefits although that will change in April, but everything else has to be protected when the transfer happens.

After that they can change the staff benefits if required, but that is no different to what the old company could have done if it had wanted. It also requires staff consultation etc and they will need to issue new employment contracts at some point.