LGPS Ill health retired - tax bill

Lolly172

Hi, I wonder if anyone can help. After struggling for 7 years with a condition I finally threw in the towel, as my health had declined further, and applied for ill health retirement. I was granted teir 1 in August this year. I have had to pay a massive Tax bill - £26,000 as all my future pension was paid into my pension pot therefore putting me well over the £40k annual allowance. Is there any way of claiming any of this back? I am in receipt of PIP benefit due to my condition. It is a long term condition and it's unlikely I'd be able to work more than a few hours a week if I can manage anything at all. I'm 49 years old. It seemed the less tax free lump sum I took the bigger the tax payment was - so I had to take my full tax free lump sum which has left me with a much smaller pension. Isn't there any way of claiming any of that tax bill back? Any advice would be greatly appreciated.

xylophone

Do you mean that you do not meet the HMRC criteria for having your ill health pension excluded for assessment under Annual Allowance rules?

From what you have said in your post you would appear to meet the criteria?

http://www.mylgpspension.co.uk/en/member-information/member-information/active-member/retirement-guide/ill-health-retirement/tier-1

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm051200 - see under Severe Ill Health.

xylophone

Incidentally, hyubh

http://forums.moneysavingexpert.com/member.php?u=1922759

knows a great deal about LGPS and may be able to throw more light?

Silvertabby

If you retire on ill health grounds with a tier 1 or tier 2 retirement you are not automatically excluded from the annual allowance test. You are more likely to be affected by the annual allowance as you will be receiving a pension enhancement. This pension enhancement can result in you having a significant increase in your pension savings in the year you retire.
To be exempt from the annual allowance test you must meet HMRC's "severe ill health" test in the year you retire with either a tier 1 or tier 2 pension. However, a GMPF approved doctor will have to assess if you meet the definition of "severe ill health" in order for this to happen. The same approved doctor who makes your LPGS ill-heath assessment will be asked to consider the "severe ill health" definition also.

The above is taken from Greater Manchester scheme info, but will apply, to a lesser or greater degree, to all LGPS providers. For example, the LGPS I worked for used the principle that if you qualified for Tier 1 ill-health retirement (as opposed to Tier 2 or 3) then you also qualified for AA tax exemption as Tier 1 was only granted for 'Severe Ill Health'. It may be that your LGPS has awarded you Tier 1 on the grounds of just 'Ill Health', but you don't meet the criteria for 'Severe Ill Health'. Were you given a copy of your medical report?

Pixal

hi, i've just been retired from work on an lgps tier 1 ill health pension and I received a call today from my lgps pension fund telling me that I have exceeded the hmrc annual allowance as a result. I've got no idea what this means or if I will face a huge tax bill. They wouldn't say over the phone and said they would write to me. Obviously I'm very worried now as I have no idea how all of this works and I was horrified to hear of Lolly172 being billed £26,000. Any advice would be great, I'm happy to provide the amount of my pension if that would help. Although I've been retired on a tier 1 I apparently don't fit the criteria for the hmrc ill health test. Thanks.

Silvertabby

It's because of the enhancement - ie, with Tier 1 your pension is based on assumed service to State pension age rather than just your actual service, and the recent reductions to the Annual Allowance limit.

See my post No 4

The HMRC ill health test is part of the medical assessment - so if your Occupational Health Dr has stated that you don't qualify, then I'm afraid there will be nothing your LGPS pension provider can do.

Neasy

Isn't there some carry forward relief? https://www.gov.uk/tax-on-your-private-pension/annual-allowance

Pixal

Hi. Thanks for your replies but I'm still a little confused. My brain doesn't work as well as it did before I became ill so I'm struggling with this. I thought the annual allowance mainly targeted high earners. Prior to retiring I was on a decent wage but nowhere near £40,000 and my pension was 6.5% so I'm guessing I will have some allowance from previous years. Ive got about 27 years in lgps and I'm 45 so the tier 1 is very generous but still well under the £40,000 limit. My lump sum was £20,000. Ive got no other income. If possible, please could someone explain how the tax calculation is done in very simple terms. I looked up the guidance from the pension fund but it was lost on me. Ive never had to do my own tax assessment before so would be grateful for advice. Thanks.