Gold SIPP: Does paying custody fees invalidate FP2014?

Au_Saver

After being made redundant in June 2012 at the age of 52 with a generous severance package and a decent DB pension pot I decided take it easy for a few years then start drawing my DB pension in April next year when I will be 55. With no debts and fully paid for house this strategy has worked out very well so far.

But fearing another 2008-style financial crisis, I decided to take out an EPML (European Pensions Management Ltd) gold SIPP with BullionVault in 2012-13 tax year transferring-in several paid-up DC pensions plus a large part of the taxed portion of my redundancy providing significant tax savings and leaving my much larger DB pension untouched for now.

I also filed an FP2014 in January this year to maximise LTA headroom at £1.5m should there be another global financial catastrophe sending the gold price to the moon as some are predicting.

FP2014 in my understanding from an HMRC pensions tax relief document, which I have a copy but can no longer find on HMRC website, also secures 25% as TFC, which was important to me since last year the Treasury had been actively considering capping this amount with some speculative figures being made at around £36k max TFC. This didn't happen but that is not to say it will not in future.

Now to the point - I left a small cash balance in my BullionVault gold SIPP account to pay gold custody fees, which in a couple of months time will be depleted so I will need to add funds to my Gold SIPP or BV will start to sell some of my gold to cover the fees.

My question - as it is my responsibility to report to HMRC any non compliance to FP2014 within 90 days of non-compliance, I must now make a judgement as to whether HMRC will consider the topping up of cash funds as a contribution or benefit accrual invalidating FP2014?

I understand that any benefit accrual <= CPI does not necessarily invalidate FP2014 but how it applies to a gold SIPP is not clear from the HMRC FP2014 guidance document.

Any help would be much appreciated.

Daniel54

If you have fixed protection then you can make no further payments into the SIPP

If you don't want gold to be sold to pay the custody charges,then is not the answer to pay for the charges outside the SIPP ?

Fixed protection does not guarantee a tax free lump sum at 25%.It will be at the terms prevailing when you crystallise it (hopefully unchanged)

Au_Saver

Many thanks for your advise.

Unfortunately I don't think it is possible to make the payment outside of the SIPP as all payments have to go to a designated bank account provided by the SIPP administrator for funding the SIPP and paying administrators annual fees.

Furthermore it doesn't appear as black and white as you or section 4.5 of the HMRC FP2014 guidance document suggest when you get to section 8.2 copied below, in particular where it mentions 'relevant contribution' and applying the benefit accrual test at the time when a contribution is made: -

8.2 When to test for benefit accrual
For a money purchase arrangement that is not a cash balance arrangement the test is whether or not any relevant contributions
have been made since 6 April 2014. The test is therefore applied at the time any contribution is made. If no relevant contributions are made to the arrangement then you will not lose your FP2014

As I understand it all pension contributions are tax relievable so that may be the answer
as I have yet to pursue this with my pension administrator, perhaps request that I make a non-tax relievable payment equal to the custody charges for the year and see what response I get.

Section 9.3 appears relevant for pursuing this approach, although not directly applicable, does refer to a payment, which is not tax relievable will not cause loss of FP2014.

If all else fails losing FP2014 may be the answer then all I will have to worry about is gold going up more than ~1,200% before I hit the current £1.25m LTA:j

Daniel54

Au_Saver wrote: »

As I understand it all pension contributions are tax relievable so that may be the answer
as I have yet to pursue this with my pension administrator, perhaps request that I make a non-tax relievable payment equal to the custody charges for the year and see what response I get.
j

You might well be correct.I see the HMRC page here makes specific reference to "new savings" as invalidating the fixed protection,and this would not be the purpose of your payment into the SIPP

https://www.gov.uk/tax-on-your-private-pension/lifetime-allowance

Someone may come long who knows the answer,but failing that it would seem wise to clarify with your SIPP provider and maybe with a call to HMRC

Au_Saver

I must be getting tired spending the whole day looking at this as I did briefly take a look at that document earlier but completely missed the reference to "new savings" so thanks for pointing that out to me.

Also it would help a lot if HMRC included a definition of terms in their FP2014 guidance document, in particular "benefit accrual" is ambiguous without being defined as benefit accrual through new savings, as it could equally mean benefit accrual through growth, the latter being the main reason why I filed FP2014 in case of the remote possibility of > 1200% growth in the gold price, or perhaps more likely hyperinflation in the pound could do the same thing with gold staying put - perish the thought.

BTW, I didn't follow-up about my reference to 25% TFC in respect of FP2014. Below is a copy paste from and HMRC document I downloaded in Oct 2013 but seems to have been since removed. It is called Pensions: Restriction of pensions tax relief, however 25% TFC entitlement was only a proposal, which is probably why the document in no longer available:-

What tax free lump sum will individuals with fixed protection 2014 be entitled to?
It is proposed that individuals with fixed protection 2014 will be able to take a tax free lump sum at the time they take a pension. The maximum lump sum that can be taken is up to 25% of their pension rights, subject to an overall limit of 25% of £1.5 million. However, some scheme rules may only allow a smaller tax free lump sum to be taken.

Thanks again for all your help, I'll post the outcome after follow up with my SIPP provider.

Daniel54

Au_Saver wrote: »

Also it would help a lot if HMRC included a definition of terms in their FP2014 guidance document, in particular "benefit accrual" is ambiguous without being defined as benefit accrual through new savings, as it could equally mean benefit accrual through growth, the latter being the main reason why I filed FP2014 in case of the remote possibility of > 1200% growth in the gold price, or perhaps more likely hyperinflation in the pound could do the same thing with gold staying put - perish the thought.

For lifetime allowance purposes,the critical figure is the value at the point of crystillisation ( value being annual benefit taken times 20 for a DB scheme,plus lump sum if taken).This recent thread may be of assistance

to answer your question,increase in pension value prior to crystallisation therefore does form part of the sum applied to the lifetime allowance

https://forums.moneysavingexpert.com/discussion/5103304

Au_Saver

.... and you just hit on my exact point about FP2014 guidance ambiguity in use of "benefit accrual" and how we have come full circle to LTA being my reason for FP2014 -

.. to preserve £1.5m higher LTA to accommodate benefit accrual through growth or as you put it increase in pension value prior to crystallisation

.. but it is benefit accrual through new saving that will cause loss of FP2014, which was the basis of my original question, now answered or at least I have a way forward thanks to your help.

Thanks for link - very interesting regarding drawdown and implications for LTA and something to consider for my gold SIPP, which I will not be touching, perhaps for many years as that is my financial insurance against currency risk such as what happened in late 1970s to early 1980s that saw the pound lose over 2/3 of its value over a few years and gold increase 800%.

Regarding 20xDB annual pension valuation for LTA, also affects real maximum TFC percentage to much less than 25% at an RA of 55 because HMRC uses 20xDB regardless of RA for TFC purposes. Benefit at RA of 55 is more LTA headroom but lower pension makes for ~30% lower valuation than at 65 so it is flawed as a valuation calculation as the pot is essentially the same just spread more thinly for an RA of 55.

Added to LTA headroom benefit is less income tax paid over lifetime, but the lower DB valuation at 55 is a problem for me because the pension from my last employment has both DC and DB pots, DC containing ~ 2 years salary in AVCs that I want to take entirely as TFC but can't because at 55 it far exceeds 25% of the sum of DC+DB pots according to HMRC 20xDB annual pension calculation.

That was my gross miscalculation when I made my AVC payments, wrongly thinking that 20xDB annual pension will increase to 30x at 55 because 20 years expected life in retirement is extended by 10 years (if I'm lucky) compared to NRA of 65 - not so according to HMRC calculation.

New pension rules may have a solution - perhaps taking the whole DC pot of ~£96k and pay some tax on the excess above 25% TFC and defer drawing on my DB pot if I can until the following tax year to keep tax to a minimum.

Thought I would add this issue to the mix as I haven't seen this discussed in other posts, which in essence was a plan in last 2 years of employment; paying AVCs into DC pot cutting income tax close to zero until DC/(DC+DB) = 25% - aim was no annuity to buy with nothing left in DC pot after 25% TFC leaving valuable DB benefits whole.