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

MarkCarnage

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?

Yes it's the rule of 16 I was meaning.....essentially the accrual due to additional year's service plus any salary increase in the year. I don't know if there is a prescribed format for it, but I asked for it and got a response, albeit with an error in it. The Administrator forgot to include an additional AVC contribution I had made a couple of years before. I wasn't sure about the figure for a different reason so allowed some headroom below the maximum I could theoretically contribute, which was just as well. I was relying on quite a lot of carry forward, and also the accuracy of what I'd been given.

In my case, the deemed DB accrual was very close to what I'd estimated for three of the four years but significantly different in one year (can't remember why now as it was several years ago).

Not sure if they are legally obliged to provide it.

Andrew31

I would imagine somewhere between £500 and £1000 for charges from an IFA.

zagfles

SouthLondonUser wrote: »

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.

Just because it's not sal sac doesn't mean you need to claim it on SA. The usual method of deducting contributions in public sector schemes is "net pay", that is not sal sac but it does deduct pension contributions before tax is applied, ie you get tax relief in the payslip so you don't need to claim it on SA.

So if the contribution is deducted from salary, it'll almost certainly be "net pay". If the amount is too big to deduct from salary and you need to send a payment, then you will probably need to claim it on SA, and it'll be essential you put it in the right box (there's a box for gross contributions to employer's scheme, which this will probably be, and another for RAS contributions, which this probably won't be).

Don't assume an IFA will give you the right answer, we've seen loads of examples here of IFAs getting this sort of thing wrong. Yes, you have comeback, in theory, but you'd need to understand they got something wrong to use it! For instance, if they said you could only contribute £10000 when in fact you could have contributed £20000, how would you ever know they've got it wrong?

Even the other way round - for instance you only need to fill the annual allowance section of the tax return if you've exceeded it - so obviously if you don't think you've exceeded it you don't fill it in. So when you do your tax return it won't be automatically be flagged up that you owe anything.

If you've already done some calculations, why not post them here and see if people agree, or if you've missed something etc. Then you can compare with any advice you get from an IFA so you'll be in a position to challenge them if there's something they've not accounted for.

zagfles

MarkCarnage wrote: »

Yes it's the rule of 16 I was meaning.....essentially the accrual due to additional year's service plus any salary increase in the year. I don't know if there is a prescribed format for it, but I asked for it and got a response, albeit with an error in it. The Administrator forgot to include an additional AVC contribution I had made a couple of years before. I wasn't sure about the figure for a different reason so allowed some headroom below the maximum I could theoretically contribute, which was just as well. I was relying on quite a lot of carry forward, and also the accuracy of what I'd been given.

In my case, the deemed DB accrual was very close to what I'd estimated for three of the four years but significantly different in one year (can't remember why now as it was several years ago).

Not sure if they are legally obliged to provide it.

A common reason for a big discrepancy is a difference in the inflation figure used by HMRC to revalue the pension, and the inflation figure used by the scheme to revalue the pension.

zagfles

SouthLondonUser wrote: »

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.

The uncertainty of a tax penalty would never be zero. For instance, one of the 3 main limits which invoke a tax penalty is the Lifetime Allowance, you're not going to know you've triggered that until you've crystallised all your pensions. In a DB scheme you can make a good estimate of its likelyhood but it will depend on future earnings, inflation, and on how future government index it, or tinker with it. For instance it's been cut massively in the last 10 years, almost halved in value.

So nobody will ever be able to tell you for certain you won't have a tax penalty, they can only make a good guess based on assumptions.

MarkCarnage

A common reason for a big discrepancy is a difference in the inflation figure used by HMRC to revalue the pension, and the inflation figure used by the scheme to revalue the pension.

In this case the difference was my figure and the Scheme Administrator's....Given the difference was for one year only, and was pretty big, I'm not thinking it was inflation.....they also forgot to include a pretty big AVC contribution that I'd made via them! Fortunately I remembered it....HMRC never queried the submission on my tax return and that was 4-5 years ago, and I have the spreadsheet of evidence to substantiate it.

SouthLondonUser

zagfles wrote: »

Just because it's not sal sac doesn't mean you need to claim it on SA.

In this case, it will be a one-off contribution not deducted from the salary. All the scheme administrator says is "talk to HMRC". HR and the scheme administrator have been one more useless than the other. The whole thing seems specifically set up so as to discourage as many people as possible, in the hope they won't bother navigating through the complexity.

zagfles wrote: »

Don't assume an IFA will give you the right answer, we've seen loads of examples here of IFAs getting this sort of thing wrong. Yes, you have comeback, in theory, but you'd need to understand they got something wrong to use it! For instance, if they said you could only contribute £10000 when in fact you could have contributed £20000, how would you ever know they've got it wrong?

Very true. My concern is that most IFAs might not be too familiar with the Teachers Pension Scheme, since most members will be teachers on relatively low incomes, who are therefore unlikely to pay for professional advice. On the other hand, an IFA should be familiar with DB schemes in general...

zagfles wrote: »

If you've already done some calculations, why not post them here and see if people agree, or if you've missed something etc. Then you can compare with any advice you get from an IFA so you'll be in a position to challenge them if there's something they've not accounted for.

Thanks!

SouthLondonUser

zagfles wrote: »

If you've already done some calculations, why not post them here and see if people agree, or if you've missed something etc.

Done here: https://forums.moneysavingexpert.com/discussion/comment/76750231#Comment_76750231


I figured it would have been more appropriate to post a separate thread. If moderators disagree, they can always merge the two.


Thanks!

SouthLondonUser

By the way, tax accountants won't touch this with a bargepole, but getting advice from an IFA is difficult and expensive. I have contacted a couple, and they have both said that current regulation makes it very difficult, if not impossible, to provide narrow advice on just the tax implications of my decision - they would have to look at the entire financial situation of their client and also provide advice on whether that decision is appropriate. To be honest it wasn't entirely clear to me if the regulators are explicitly forcing this, or if it's most IFAs who feel this way because they are afraid of complaints and litigation, but the final result is the same.

On one hand I can understand it, but on the other hand it leaves a number of people worse off because, realistically, they will get no advice whatsoever!

zagfles

You could ask the TPAS, they give help with all sorts of pensions issues. And they're free

https://www.pensionsadvisoryservice.org.uk