Who can confirm the max contribution to DB pension without tax penalty? Accountant? IFA?

SouthLondonUser

A relative asked me to help him calculate what is the maximum amount he could contribute to this defined-benefit pension without triggering a tax penalty. To be clear, he wants to know what this figure is before contributing it.

The question is: who is this question for? An independent financial advisor? A tax accountant? Someone who qualified as both an accountant and a financial advisor?

Thanks also to some of the comments and threads on this site, we think we have an answer; however, we would like a professional to double check the calculation, to ensure there isn't some rule we forgot about or we misinterpreted. The calculations themselves are banal; ensuring you are aware of all the rules affecting them isn't!

What kind of professional would be able to assist on this?

A couple of tax accountants we contacted freaked out - they refuse to help because they are terrified it could be seen as pension advice, which they cannot provide. In fact, no advice is being sought on asset allocation investment etc - only on the tax implications, the very same tax implications an accountant would calculate when filing a self assessment for his client.

Malthusian

I was about to say that defined benefit pensions are often "in or out" and don't let you choose how much to pay in, but I see from your other thread that you were looking into "added years" purchase where you can.

I think your previous experience confirms you should see an IFA if you want to pay for a professional opinion.

MarkCarnage

I suspect that the question is for more than one person.

The Scheme Administrator would need to advise what the deemed contribution is from the pension accrual during the year, as it's clear from the post he is an active member. Is the intention to contribute via an AVC contract? Or do the rules permit purchase of additional years? Will depend on the scheme rules too.

In some cases it may be difficult to determine until after the event what the maximum annual allowance is, due to the earnings taper....see all the flak around senior doctors' pensions....

This may be why some want to run a mile from it.

I had to do this a few years back, and used carry forward of excess prior year allowance but left a margin of error, which was just as well as the Scheme Administrator made an error when advising me of prior year deemed contributions.

Without having the information on deemed contributions it's impossible to know what the remaining headroom is.

Andrew31

I work for an IFA and we would certainly be able to tell you how much.

Andrew31

SouthLondonUser wrote: »

A couple of tax accountants we contacted freaked out - they refuse to help because they are terrified it could be seen as pension advice, which they cannot provide. In fact, no advice is being sought on asset allocation investment etc - only on the tax implications, the very same tax implications an accountant would calculate when filing a self assessment for his client.

oh and by the way, pension advice IS being given here. Advice is not just about how money is invested. If a professional advised you how much you could contribute and got it wrong, they undoubtedly be subject to a complaint.

SouthLondonUser

Andrew31 wrote: »

oh and by the way, pension advice IS being given here. Advice is not just about how money is invested. If a professional advised you how much you could contribute and got it wrong, they undoubtedly be subject to a complaint.

Mmm, what I don't get is: how is that different from filing a self-assessment and calculating whether any taxes are due? isn't that part of an accountant's job?

The only difference is that here we are asking to estimate the calculation before the fiscal year is over; however, the uncertainty should be zero because this person is on a fixed salary, and there won't be any overtime nor raises between now and April 5th, when the tax year ends.

If I go to a tax accountant with all the paperwork and ask him to file my self assessment, he will need to calculate whether I am due some tax relief or I have to pay some tax penalty on my pension contributions, right? AFAIK independent financial advisors do not file self assessments for their clients.

To give a bit more colour, this is about buying "additional pension" for the Teachers Pension Scheme (which is an unfunded liability of HM Treasury, not a funded scheme). These contributions are not done through salary sacrifice (we have not triple but quadruple checked) so I understand tax relief will have to be claimed by filing a self assessment.

SouthLondonUser

MarkCarnage wrote: »

The Scheme Administrator would need to advise what the deemed contribution is from the pension accrual during the year, as it's clear from the post he is an active member.

Yes, he is an active member.

By "deemed contribution" do you mean multiplying by 16 how much the pension value has gone up in the tax year? For clarity, is there a specific report / statement / document which we can request from the scheme administrator to certify that? If there is, it would be useful to keep a copy. Is the scheme administrator obliged to provide it or can it refuse?

SonOf

In fact, no advice is being sought on asset allocation investment etc - only on the tax implications, the very same tax implications an accountant would calculate when filing a self assessment for his client.

advice is being sought on the contribution level though and as such that makes it regulated advice.

Also, the accountant would not calculate the figures for self assessment. They would ask you to obtain the figures.

Mmm, what I don't get is: how is that different from filing a self-assessment and calculating whether any taxes are due? isn't that part of an accountant's job?

The accountant fills in what has happened. An adviser advises you on what you should do. i.e. one looks backwards and the other looks forwards.

The only difference is that here we are asking to estimate the calculation before the fiscal year is over; however, the uncertainty should be zero because this person is on a fixed salary, and there won't be any overtime nor raises between now and April 5th, when the tax year ends.

You are asking for advice on how much you can pay. That is advice and forward looking. If it was wrong you would complain and accountants are not authorised to give pension advice.

Accountants and IFAs frequently work together as there are bits that can overlap each others' remit to allow a transaction to occur but they dont do the same things.

If I go to a tax accountant with all the paperwork and ask him to file my self assessment, he will need to calculate whether I am due some tax relief or I have to pay some tax penalty on my pension contributions, right? AFAIK independent financial advisors do not file self assessments for their clients.

No. That is not correct. The accountant will calculate whether you are due some tax relief or due a penalty based on what you have told them you have done. IFAs will tell you the figures and tell you what you should do.

Malthusian

SouthLondonUser wrote: »

Mmm, what I don't get is: how is that different from filing a self-assessment and calculating whether any taxes are due? isn't that part of an accountant's job?

"You owe x thousand to HMRC" is a statement of fact. "You should pay x thousand into a pension scheme" is financial advice.

The only difference is that here we are asking to estimate the calculation before the fiscal year is over; however, the uncertainty should be zero because this person is on a fixed salary, and there won't be any overtime nor raises between now and April 5th, when the tax year ends.

None of those things are certain. That said, an adviser should be able to caveat the advice accordingly.

xylophone

https://www.teacherspensions.co.uk/members/working-life/paying-in/tax-and-national-insurance/annual-allowance.aspx


https://www.pruadviser.co.uk/tools-calculators/defined-benefit-pension-tool/

Does the above help?

SouthLondonUser

Thank you all for the answers. So we'll find an IFA. Any ideas how much this kind of advice could cost? Bearing in mind no advice whatsoever is being sought on asset allocation, on whether other investments would be more appropriate, etc - just to confirm the maximum amount which can be contributed without triggering a tax penalty.

xylophone wrote: »

https://www.teacherspensions.co.uk/members/working-life/paying-in/tax-and-national-insurance/annual-allowance.aspx


https://www.pruadviser.co.uk/tools-calculators/defined-benefit-pension-tool/

Does the above help?

Thank you for the links. We used the information in there and on this forum for our estimate - we now want a professional to confirm it. As said, the calculation themselves are banal - we don't need a "professional" to confirm that we have multiplied by 16 correctly etc - we just need someone to tell us if there isn't any other rule that we missed out and that would affect the situation.

SonOf wrote: »

advice is being sought on the contribution level though and as such that makes it regulated advice.

Also, the accountant would not calculate the figures for self assessment. They would ask you to obtain the figures.

So, after the end of the tax year, exactly what documents would my relative need to get from HR and/or the scheme administrator, apart from the P60, to give to a tax accountant who will file his self assessment?

Statements from the scheme administrator confirming:

• the total amounts paid via salary sacrifice
• the total amounts paid not via salary sacrifice
• the deemed contributions for the year (based on how much the value has gone up)

Anything else? Are there specific technical names for these statements? Does HMRC expect them to be in a very specific format (in case of audit / questions)?

SonOf wrote: »

The accountant fills in what has happened. An adviser advises you on what you should do. i.e. one looks backwards and the other looks forwards.

I can see why most accountants, and probably the law/the regulators look at it this way, but I continue to find it a bit nonsensical. If I ask an accountant: "in my tax bracket, how much interest can I receive tax free?" I struggle to see how that would be financial advice! Anyway, it's a moot point - like I said we'll find an IFA. Thanks!