Alpha / classic tax bill

hugheskevi

Do the scheme administrators not include an AA calculation / value as part of the annual statement?

The Civil Service does not include pension inputs on Annual Benefit Statements.

Have the scheme administrators told your friend that she has exceeded the AA?

The Civil Service sends out Pension Saving Statements to members who:

• Have a combined pension input from their Civil Service Defined Benefit schemes in excess of £40,000
• Have a salary in excess of £100,000
• Request a statement, or who have requested one in the past

For the administrators this stuff is bread and butter and easy to calculate, programmed calculation & print answer in correct box on form. Does CSP not provide this? 

They do on Pension Saving Statements, in line with statutory obligations to provide pension input for current and 3 previous financial years. An example Pension Saving Statement and guide is at this link - this is referenced in the statement members receive.

The statements aren’t very clear / easy to follow, there’s a line that’s says you may have exceeded your allowance and then has a figure but it doesn’t say if you owe tax or how much

The pension provider cannot know whether you owe tax or not, nor does it have the information to determine how much is owed. Whether there is a charge (and if so, how much it is) will depend on pension contributions to all pension schemes (eg SIPPS, as the poster above mentions) as well as your taxable income from all sources and the tax allowances to which you are entitled.

For this reason, the pension scheme is obligated to provide the pension inputs from the current and previous 3 tax years, then it is an individual responsibility to determine whether a tax charge is due, and if so, to declare and pay the charge.

WHUFC123

“ The pension provider cannot know whether you owe tax or not, nor does it have the information to determine how much is owed. Whether there is a charge (and if so, how much it is) will depend on pension contributions to all pension schemes (eg SIPPS, as the poster above mentions) as well as your taxable income from all sources and the tax allowances to which you are entitled. 

how would the pension provider not know how much tax is owed when the only info is what they sent out, ,, so basically if you get a promotion you end up paying a big tax bill even though you contributions are well under the 40k allowance it seems, the friend has decided to come out the pension so it doesn’t build up more tax bill and try and pay off whatever it comes to over whatever HMRC will allow over next couple years if possible

oxfordowl1

the friend has decided to come out the pension so it doesn’t build up more tax bill. 

Almost certainly a drastic mistake to leave the Alpha pension scheme. This is because such a tax bill has been caused by the recent increase in pay. If their pay remains broadly similar going forwards, there will not be any new tax to pay nor any 'build up' of more tax.

My union (PCS) hosts regular sessions about pensions. Perhaps if your friend is in a union they may offer similar sessions which may well be helpful. 

hugheskevi

how would the pension provider not know how much tax is owed when the only info is what they sent out

No it is not.

To calculate the charge information about contributions to other pensions schemes is required - this may well be none, but the pension provider does not know this, only the individual member. So if the member makes contributions to an entirely separate SIPP, for example, that will affect the tax charge due.

Also information about taxable income is required to assess whether the member is affected by the tapered Annual Allowance. There may well be little or even no additional taxable income beyond the member's pensionable earnings (although many would have some bonus income at least), but again, the pension provider does not know this, only the individual member.

so basically if you get a promotion you end up paying a big tax bill even though you contributions are well under the 40k allowance it seems

I actually doubt a tax charge is due from the information shared so far, and if there is, it doesn't look like being big.

the friend has decided to come out the pension so it doesn’t build up more tax bill and try and pay off whatever it comes to over whatever HMRC will allow over next couple years if possible

This is probably a stupid decision, especially as there is no reason to expect to exceed the Annual Allowance in 2020/21 or beyond. This would only happen if there is a promotion and the value of pension increased significantly. To look at it another way, would your friend turn down a large pay increase because it would lead to having to pay more income tax?

At the very most, they should switch to the Partnership alternative scheme rather than fully opt-out - Partnership is non-contributory and will not lead to a tax charge given the salary involved.

Any tax charge can be paid using the voluntary Scheme Pays process so there is no need to try to enter into repayment plans with HMRC.

I'm afraid you and your friend need to either do a lot more research to understand this process (reading through all the links in my post here will be sufficient) or employ an advisor - it is certainly premature to be making any decisions.

Dazed_and_C0nfused

the friend has decided to come out the pension so it doesn’t build up more tax bill. 

I don't think they have thought this through.

Leaving the pension scheme will immediately increase the tax they have to pay as Alpha pension contributions reduce the amount of salary that is taxable.

For example if the salary is £78k they will be contributing 7.35% meaning their taxable salary is only £72,267.

If they stop contributing their taxable salary will be £78k and they will have extra tax of £2,293/year to pay (£2,350 if Scottish resident for tax purposes).

And they will lose £1,809 pension in return for having to pay that extra £2,293 in tax 

hyubh

WHUFC123 said:

so basically if you get a promotion you end up paying a big tax bill even though you contributions are well under the 40k allowance it seems

No - or rather, if you are a high earner (+£70K is a high earner!) in a generous DB pension scheme (Alpha is a very generous DB scheme!) and the value of that pension jumps sharply in a year, you may have the tax relief pertaining to that increase in pension taken back, through the AA. Employee contributions to the civil service pension scheme bare no relation whatsoever to the value of the pension accrued, so your friend moaning that they personally contributed less than 40K is neither here nor there - CSPS rates are small even by the standards of the wider public sector. His/her contributions mean nothing like the same proportion of pay paid by a private sector worker into their own employer's DC pension.

the friend has decided to come out the pension so it doesn’t build up more tax bill and try and pay off whatever it comes to over whatever HMRC will allow over next couple years if possible

Excellent, that's at least one public sector employee on a fat base salary yet with a superbly generous pension I will no longer be help funding...

AlanP_2

OP - Why don't you collect the information that has been mentioned and post it on here for help working through what the "real" impact is for your friend?

WHUFC123

There boxes are saying, 2017/18 alpha 32,999 classic 24,625
18/19 Alpha 39,319 classic 28,440
19/20 Alpha 58400 classic 32,990
due to a promotion had a 10 per cent pay rise in nov 18, and since then another 6 percent last year

hugheskevi

WHUFC123 said:

There boxes are saying, 2017/18 alpha 32,999 classic 24,625
18/19 Alpha 39,319 classic 28,440
19/20 Alpha 58400 classic 32,990
due to a promotion had a 10 per cent pay rise in nov 18, and since then another 6 percent last year

You should also have a 2016/17 pension input figure.

Is the person purchasing alpha Added Pension? Otherwise the alpha pension input figure is much too high (consistent with a salary of £157K) and should be queried with MyCSP. Or have you transposed the classic and alpha figures by accident?

Your friend should have received Pension Saving Statements in 2018 and 2019 as well - what did they do with those? Although it is quite common not to have been sent statements unfortunately

Your friend will also need to request pension inputs from MyCSP for at least 2014/15 and 2015/16 as well to correctly calculate their liability.

Is there any risk they are subject to tapered Annual Allowance (which is usually if they have taxable income over £110,000) in any of these years?

Ministry of Justice (assuming that is the employer) should also be offering 1-2-1 guidance sessions to people in this position, did they?

WHUFC123

Hugheskevi, thanks I will call them later to see if they have previous figures
i Know they have not purchased added pension, and I don’t think they received a statement last year, but their income has never been over there current wage, they have booked a 1-1 via video call for a week monday now