Carry Forward Pension Allowance

jonbo300

Hi all,
Just looking for information, please. I am a uk air traffic controller who has just lost his medical licence to continue working. My company operates a loss of licence scheme which pays out 2 years salary in a lump sum if the employment is terminated because of medical reasons. I am about to be terminated and the company have agreed to pay out the lump sum. Because of the tax implications on the large amount ( lump sum and 3 months notice period is about £150000), I would wish the company to put about £110000 into my company pension using my unused pension allowance of this tax year, and the unused carry forward pension allowance of the last 3 years. There is plenty of allowance available.

My questions are
1) Could the carry forward pension allowance over the last 3 years be used in this case.
2) Would HMRC allow the large lump sum to be put into my pension.
3)Would there be a reason that HMRC would not regard the lump sum as earnings?

Thanks jonbo300

zagfles

jonbo300 wrote: »

Hi all,
Just looking for information, please. I am a uk air traffic controller who has just lost his medical licence to continue working. My company operates a loss of licence scheme which pays out 2 years salary in a lump sum if the employment is terminated because of medical reasons. I am about to be terminated and the company have agreed to pay out the lump sum. Because of the tax implications on the large amount ( lump sum and 3 months notice period is about £150000), I would wish the company to put about £110000 into my company pension using my unused pension allowance of this tax year, and the unused carry forward pension allowance of the last 3 years. There is plenty of allowance available.

My questions are
1) Could the carry forward pension allowance over the last 3 years be used in this case.

Yes provided you've been a member of a pension scheme, see

http://www.aviva-for-advisers.co.uk/site/public/tech-centre/tech-article-detail/annual-allowance---carry-forward

http://www.hmrc.gov.uk/tools/pension-allowance/index.htm

2) Would HMRC allow the large lump sum to be put into my pension.

Yes you can put as much as you want in, but you might be subject to the AA charge (if you exceed the AA after accounting for carry forwards) or you might not get tax relief (if you exceed the "relavent earnings" limit - note there is no carry forwards for this).

3)Would there be a reason that HMRC would not regard the lump sum as earnings?

Possibly - see http://adviser.royallondon.com/technical-central/information-guidance/contributions-and-tax-relief/member-contributions-tax-relief-and-annual-allowance/

TH1878

jonbo300 wrote: »

Hi all,
Just looking for information, please. I am a uk air traffic controller who has just lost his medical licence to continue working. My company operates a loss of licence scheme which pays out 2 years salary in a lump sum if the employment is terminated because of medical reasons. I am about to be terminated and the company have agreed to pay out the lump sum. Because of the tax implications on the large amount ( lump sum and 3 months notice period is about £150000), I would wish the company to put about £110000 into my company pension using my unused pension allowance of this tax year, and the unused carry forward pension allowance of the last 3 years. There is plenty of allowance available.

My questions are
1) Could the carry forward pension allowance over the last 3 years be used in this case.

Yes, just make sure you have your calculations correct and understand how the unused allowance is used (oldest year first)

2) Would HMRC allow the large lump sum to be put into my pension.

Yes but see above.

3)Would there be a reason that HMRC would not regard the lump sum as earnings?

This will be coming in as an employer contribution and not a personal contribution, correct? If so, you don't need to worry about whether HMRC regard it as earnings.

Sorry to hear about the termination of the job btw.

jonbo300

Thanks so much for your replies. Much appreciated.

I think I am a bit confused as to how I should regard "relevant earnings" in my situation

Just to clarify. I am a member of the company defined contribution scheme. My employer is putting the lump sum through the PAYE system .
Would the pension contribution then be regarded as an employer contribution and so I wouldn't have to worry about HMRC regarding it as earnings. The relevant earnings definition would not apply
In other words, if the employer puts the lump sum through as an employer contribution, I wouldn't have to worry whether HMRC would regard it as relevant earnings and I could then put in a large sum and use the carry forward pension allowance from the previous three years.

Thanks so much for your help and your concern.. Just trying to get my head round all the points!!

TH1878

jonbo300 wrote: »

Thanks so much for your replies. Much appreciated.

I think I am a bit confused as to how I should regard "relevant earnings" in my situation

Just to clarify. I am a member of the company defined contribution scheme. My employer is putting the lump sum through the PAYE system .
Would the pension contribution then be regarded as an employer contribution and so I wouldn't have to worry about HMRC regarding it as earnings. The relevant earnings definition would not apply
In other words, if the employer puts the lump sum through as an employer contribution, I wouldn't have to worry whether HMRC would regard it as relevant earnings and I could then put in a large sum and use the carry forward pension allowance from the previous three years.

Correct.

Thanks so much for your help and your concern.. Just trying to get my head round all the points!!

You're welcome. Feel free to ask any more questions.

jonbo300

Hi TH1878,

Thanks again for your input confirming my understanding of the pension contribution

Best Wishes

TH1878

jonbo300 wrote: »

Hi TH1878,

Thanks again for your input confirming my understanding of the pension contribution

Best Wishes

No problem! :beer: