Enhanced tax free cash on S32 policies

edited 30 October 2014 at 11:04PM in Pensions, Annuities & Retirement Planning
8 replies 1.8K views
LongTermLurkerLongTermLurker Forumite
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Hi folks, I'm back :)

I have a couple of S32 policies. I asked the provider about the tax free cash entitlement and got the following answer (cut from the full letter):

"As of today, the value is £xxxx.xx

At 5 April 2006, the tax-free lump sum was £yyyy.yy; this figure is the tax free cash sum that has been increased in line with RPI from the date of leaving previous employment to 5 April 2006 (my paraphrase). This figure is not guaranteed. The actual lump sum will be calculated on the date of retirement.

Please note that A-day fund value is £zzzz.zz, therefore, tax free cash in %age terms would be about 62%" (note that yyyy is 62% of zzzz, but only 24% of xxxx)

I'm obviously interested in %age figures for now or the future, not 2006, but I realise that date must have a bearing - am I right in thinking that the %age figure was "set" on A-day, and when I retire I will be entitled to 62% of whatever the value is then?

Or when I retire, do I just get the higher of £yyyy.yy or 25% of the final value?

TIA

LTL
You've never seen me, but I've been here all along - watching and learning...:cool:

Replies

  • Depends if you have any transitional protection from A-Day and if your total TFC entitlement from all pensions were greater than 25% of the then LTA (£1.5m). The TFC protection is different under Primary or Enhanced.

    If you did not, then you will likely have scheme-specific protection for the TFC. Your TFC entitlement in monetary terms will increase by 20% (i.e. revalued by the LTA changes £1.8m/1.5m) plus an Additional Lump Sum Amount equivalent to 25% of the growth in your pension rights since A-Day. Again this varies depending on any transitional protection from 2012 or 2014 onwards.

    So it is not a straightforward calculation of 62% of £x.

    Slightly more complicated as it is an S32 too so the GMP must be first met.
    Stephen Covey once said that "when you teach once, you learn twice". That is the primary reason for my participation on the forums as an IFA.

    Although I strive to provide accurate information in my posts, there may be the odd time when I fail. Yes I know it's hard to believe but even Your Hero can make mistakes. Apologies in advance.
  • edited 31 October 2014 at 7:57AM
    LongTermLurkerLongTermLurker Forumite
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    edited 31 October 2014 at 7:57AM
    Thanks - to make it a bit simpler, LTA / protection doesn't come into it and there is no GMP.

    So are you saying that the value on A-day is increased by 20%pa, or just on retirement? And then on retirement, 25% of the growth since A-day is added?

    Sorry if I've misunderstood, but I've only just woken up :D
    You've never seen me, but I've been here all along - watching and learning...:cool:
  • Thanks - to make it a bit simpler, LTA / protection doesn't come into it and there is no GMP.

    So are you saying that the value on A-day is increased by 20%pa, or just on retirement? And then on retirement, 25% of the growth since A-day is added?

    Sorry if I've misunderstood, but I've only just woken up :D
    No.

    There's 2 parts to the calculation. The first part relates to the TFC at A-Day £yyyy. Assuming no transitional protection at all, then it's 20% increase from it's A'day value (in monetary figures), i.e. £yyyy x 1.2.
    The second part relates to the post A-day fund growth, namely the the ALSA = [£xxxx - (£zzzz x 1.25/1.5)] / 4

    Add the two parts together.
    Stephen Covey once said that "when you teach once, you learn twice". That is the primary reason for my participation on the forums as an IFA.

    Although I strive to provide accurate information in my posts, there may be the odd time when I fail. Yes I know it's hard to believe but even Your Hero can make mistakes. Apologies in advance.
  • LongTermLurkerLongTermLurker Forumite
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    Great, thanks. I'll look at this later.
    You've never seen me, but I've been here all along - watching and learning...:cool:
  • LongTermLurkerLongTermLurker Forumite
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    Thanks YH. Can you explain the equation in part 2? Why has the a-day fund value been increased by 25%, and what's the significance of the 1.5 - is that related to the 1.5m LTA?

    <<The second part relates to the post A-day fund growth, namely the the ALSA = [£xxxx - (£zzzz x 1.25/1.5)] / 4>>
    You've never seen me, but I've been here all along - watching and learning...:cool:
  • Thanks YH. Can you explain the equation in part 2? Why has the a-day fund value been increased by 25%, and what's the significance of the 1.5 - is that related to the 1.5m LTA?

    <<The second part relates to the post A-day fund growth, namely the the ALSA = [£xxxx - (£zzzz x 1.25/1.5)] / 4>>

    Your A'Day fund value has to be revalued by a ratio of the current Standard Lifetime allowance (or higher if you have transitional protection) and the then Lifetime allowance (at A-day). Since you have no transitional protection (Fixed protection 2012, 2014, or Individual protection 2014) you have a standard lifetime allowance of £1.25m. So you multiply your A-day fund by (£1.25m/ £1.5m).
    Stephen Covey once said that "when you teach once, you learn twice". That is the primary reason for my participation on the forums as an IFA.

    Although I strive to provide accurate information in my posts, there may be the odd time when I fail. Yes I know it's hard to believe but even Your Hero can make mistakes. Apologies in advance.
  • LongTermLurkerLongTermLurker Forumite
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    Your_Hero wrote: »
    So you multiply your A-day fund by (£1.25m/ £1.5m).

    Got it :beer: I thought the 1.25 was a 25% increase, as that was the way you'd performed the 20% uplift in stage 1.
    You've never seen me, but I've been here all along - watching and learning...:cool:
  • LongTermLurkerLongTermLurker Forumite
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    Good sig btw - explaining things to others is by far the best way to fix a methodology in your own mind :)
    You've never seen me, but I've been here all along - watching and learning...:cool:
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