New pension allowances , autumn statement

taggarc

Rumour it that the £50k annual Pension allowance is about to change to either 40k or £30k per year.

I am currently a member of a final salary scheme and I have been due a pay rise for over 6 months ago if I sign a contract, which I have just done, but now worried about the likely tax implications caused by the proposed changes.

Under the old rules I would have no tax liability, but if I don't get the rise paid prior to Wednesday, I may well have a substantial tax liability due to the likely rule changes. Moreover, even if I do get the rise paid by then when is it deemed to impact my pension and when is the likely tax liability to arise?

Does the liability for tax or the allowance kick in when date of the contract is signed, when the salary is paid, or is it dependent on the percualities of the pension scheme or when the tax return is assessesed, completed.

Any help or ideas appreciated.

Taggarc

hugheskevi

I am currently a member of a final salary scheme and I have been due a pay rise for over 6 months ago if I sign a contract, which I have just done, but now worried about the likely tax implications caused by the proposed changes.

Final salary in most schemes isn't your actual salary at any given moment, but your pensionable pay measured over a period (often the last year).

Under the old rules I would have no tax liability, but if I don't get the rise paid prior to Wednesday, I may well have a substantial tax liability due to the likely rule changes.

I doubt it would make any difference exactly when you get the pay rise. It might, but that would depend on how exactly the change to annual allowance is implemented (assuming it happens) and any protections that are given for current tax years and pension input periods.

Moreover, even if I do get the rise paid by then when is it deemed to impact my pension and when is the likely tax liability to arise?

Your pension scheme will have a pension input period, which is a period of one year - it may be the financial year, but doesn't have to be.

You measure your pension at the start of the pension input period (with an allowance for an increase by CPI) and at the end, and multiply the increase by 16, adding in any change in lump sum entitlement should the scheme offer an automatic lump sum.

That gives how much you are deemed to contribute. For tax purposes, it counts in the tax year when the pension input period ends.

Does the liability for tax or the allowance kick in when date of the contract is signed, when the salary is paid, or is it dependent on the percualities of the pension scheme or when the tax return is assessesed, completed.

When you complete self-assessment for the appropriate year, and worth noting that you can choose that the scheme pays (subject to some conditions) and have your pension adjusted.

StephenM_2

hugheskevi wrote: »

Final salary in most schemes isn't your actual salary at any given moment, but your pensionable pay measured over a period (often the last year).

I the scheme I'm in, its 12 x the average of the last 36 months (well actually the best consecutive 36 months in the last 10 years, but lets not over complicate things). Which basically means that any increase in salary takes 3 years to fully work its way through, and so smooths out the annual allowance utilization. Not that I'm likely to get a a large enough increase to worry about this though.

bjo_2

Pure greed
what about minimum wage workers

hugheskevi

what about minimum wage workers

It depends on scheme characteristics, but a minimum wage worker is likely to require both very long service and an increase of about 90% of pensionable pay before they are affected by the Annual Allowance (assuming carry-forward, that the Annual Allowance is lowered and they are in a 1/60s scheme).

taggarc

hugheskevi, many thanks

The Pension scheme runs from April to April and the contract would be back dated to June 2011 to when I started the job. So I don't know whether that would impact any previous pension input amount, i.e. 2011-2012 tax year or not or just count in full for 2012-2013.

Either way might be a bit of a sod if the allowance goes back to £30 k per annum and this applies to any unused allowances. Applying multiples of 16 and taxing you now for something you may or not get then taxing you when you get it and changing the rules every so many months - you couldn't make it up.

Taggarc

gadgetmind

taggarc wrote: »

you couldn't make it up.

It's just as bad for those with private pensions who are trying to make up for the credit crunch with a few years of larger contributions. They only just change the whole system and now they're talking about changing it again.

Madness!

zagfles

You can carry forwards unused allowances from the last 3 tax years, if they were to reduce the annual allowance to say £30k, they would probably still allow carry forwards of any unused allowance within the previous £50k allowance. Otherwise mass panic would ensue with people trying to use up their allowance while they can.

So in all likelyhood, you'd have at least £180k of pension input amount over the last 4 tax years before the annual charge kicks in, even quite a big pay rise would cope with that. Unless you've had recent big rises and you've been in the scheme a long time.

My prediction is they'll reduce the annual allowance but increase the number of tax year's allowance you can carry forwards.

gadgetmind

zagfles wrote: »

My prediction is they'll reduce the annual allowance but increase the number of tax year's allowance you can carry forwards.

Only any use to me if they let me go further back in time as I was looking at maxing out the next few years.

grey_gym_sock

my prediction is they'll do absolutely nothing, and these rumours were started by pension companies in an attempt to drum up some extra business.

(i have no inside knowledge.)

gadgetmind

They are certainly going to have to tread with care, which is something they have struggled with in the past.