Armed Forces Pension Scheme - Lump sum purchase of added pension

TcpnT

Silvertabby, thanks for your input.
It's actually my sister. She is certainly planning to stay in till 60 if she can.  She already has the quotation and asked me how it compared in value to other schemes. I recommended taking advantage of it but questioned whether there was any limit (apart from the total added pension cap - which won't be applicable!) to how much she could pay in a particular year. I think you're right - the only way to find out is to ask them directly. Unfortunately responses seem to be very slow and sometimes misleading.

Silvertabby

TcpnT said:

Silvertabby, thanks for your input.
It's actually my sister. She is certainly planning to stay in till 60 if she can.  She already has the quotation and asked me how it compared in value to other schemes. I recommended taking advantage of it but questioned whether there was any limit (apart from the total added pension cap - which won't be applicable!) to how much she could pay in a particular year. I think you're right - the only way to find out is to ask them directly. Unfortunately responses seem to be very slow and sometimes misleading.

If you really want to compare this with other public sector pension purchase schemes, then AFPS15 has a big advantage.  That is, as long as your sister serves to 60, she will be able to draw her additional pension in full.  Unlike other schemes, which will apply an early payment reduction if taken before SPA.

OldBeanz

Silvertabby said:

TcpnT said:

Silvertabby, thanks for your input.
It's actually my sister. She is certainly planning to stay in till 60 if she can.  She already has the quotation and asked me how it compared in value to other schemes. I recommended taking advantage of it but questioned whether there was any limit (apart from the total added pension cap - which won't be applicable!) to how much she could pay in a particular year. I think you're right - the only way to find out is to ask them directly. Unfortunately responses seem to be very slow and sometimes misleading.

If you really want to compare this with other public sector pension purchase schemes, then AFPS15 has a big advantage.  That is, as long as your sister serves to 60, she will be able to draw her additional pension in full.  Unlike other schemes, which will apply an early payment reduction if taken before SPA.

As long as she does not compare it with the older schemes. (Deserved as they were)

Silvertabby

OldBeanz said:

Silvertabby said:

TcpnT said:

Silvertabby, thanks for your input.
It's actually my sister. She is certainly planning to stay in till 60 if she can.  She already has the quotation and asked me how it compared in value to other schemes. I recommended taking advantage of it but questioned whether there was any limit (apart from the total added pension cap - which won't be applicable!) to how much she could pay in a particular year. I think you're right - the only way to find out is to ask them directly. Unfortunately responses seem to be very slow and sometimes misleading.

If you really want to compare this with other public sector pension purchase schemes, then AFPS15 has a big advantage.  That is, as long as your sister serves to 60, she will be able to draw her additional pension in full.  Unlike other schemes, which will apply an early payment reduction if taken before SPA.

As long as she does not compare it with the older schemes. (Deserved as they were)

I went the AVC route (tax relief in, tax free cash out) with my LGPS pension as it was always my intention to retire at 60.  New APCs are good for those who intend working to SPA, not so much for early retirees.

TcpnT

I've had another chat about this with her. She definitely plans to stay until 60 and wants to do all she can to take advantage of the added pension at 60. With this in mind she would like to make as large lump sum contribution as possible this year and next. Whilst I thought I had Annual allowance  and tax relief rules clear I am am struggling to work out what is possible here.
Her only UK earnings are from her Army Reserve work. I don't know the exact amount but let's assume £5000pa. Well under income tax personal allowance so no tax payable.
So assuming she paid a lump sum of £40K (coincidentally same as annual allowance but could be less if necessary and more if possible) to gain added pension of £2000 per year her pension input amount for the year  could be around £40k. The question is whether, with low earnings, no tax paid and no tax relief claimed is she allowed to make a contribution of this size. In this situation what determines the maximum contribution allowable?

TcpnT

TcpnT said:

I've had another chat about this with her. She definitely plans to stay until 60 and wants to do all she can to take advantage of the added pension at 60. With this in mind she would like to make as large lump sum contribution as possible this year and next. Whilst I thought I had Annual allowance  and tax relief rules clear I am am struggling to work out what is possible here.
Her only UK earnings are from her Army Reserve work. I don't know the exact amount but let's assume £5000pa. Well under income tax personal allowance so no tax payable.
So assuming she paid a lump sum of £40K (coincidentally same as annual allowance but could be less if necessary and more if possible) to gain added pension of £2000 per year her pension input amount for the year  could be around £40k. The question is whether, with low earnings, no tax paid and no tax relief claimed is she allowed to make a contribution of this size. In this situation what determines the maximum contribution allowable?

After a lot of further reading I'm going to try and answer my own question here. Although I titled the thread "Armed Forces Pension" the question is actually a lot more general and is really about the the treatment of lump sum payments for additional/added pension in CARE schemes in terms of annual allowance.
For my example above annual earnings are circa £5K therefore no income tax is paid. A lump sum payment of £40K this tax year will purchase approx £2000 of annual pension from age 60. The exact Pension Input Amount for 20/21 cannot be known until after the end of the year but with this increase to the annual pension is likely to be around £40K as well. It may be less but it could well be more because I don't know the exact details of previously accrued pension in the scheme.
I was initially concerned that the lump sum payment exceeded the earned income limit and so would not be allowable. However I'm now pretty convinced that the earned income limit only applies to tax relief eligibility and that as no tax relief is being claimed it does not apply in this case.
So the important limit is the £40K annual allowance which the PIA may or may not exceed. However PIA for the previous 3 years has been low. Max £5K per year. So I think she is fine to make the planned contribution and in fact could contribute a lot more if desired. Possibly up to a PIA of 40+(3X35)=£145K. which could allow a lump sum added pension contribution of at least £100K this tax year.
Comments please. I'm ready to be shot down in flames if necessary. Input from @zagfles would be much appreciated, though you must be sick to death of replying to this subject matter.

Marcon

TcpnT said:

TcpnT said:

I've had another chat about this with her. She definitely plans to stay until 60 and wants to do all she can to take advantage of the added pension at 60. With this in mind she would like to make as large lump sum contribution as possible this year and next. Whilst I thought I had Annual allowance  and tax relief rules clear I am am struggling to work out what is possible here.
Her only UK earnings are from her Army Reserve work. I don't know the exact amount but let's assume £5000pa. Well under income tax personal allowance so no tax payable.
So assuming she paid a lump sum of £40K (coincidentally same as annual allowance but could be less if necessary and more if possible) to gain added pension of £2000 per year her pension input amount for the year  could be around £40k. The question is whether, with low earnings, no tax paid and no tax relief claimed is she allowed to make a contribution of this size. In this situation what determines the maximum contribution allowable?

After a lot of further reading I'm going to try and answer my own question here. Although I titled the thread "Armed Forces Pension" the question is actually a lot more general and is really about the the treatment of lump sum payments for additional/added pension in CARE schemes in terms of annual allowance.
For my example above annual earnings are circa £5K therefore no income tax is paid. A lump sum payment of £40K this tax year will purchase approx £2000 of annual pension from age 60. The exact Pension Input Amount for 20/21 cannot be known until after the end of the year but with this increase to the annual pension is likely to be around £40K as well. It may be less but it could well be more because I don't know the exact details of previously accrued pension in the scheme.
I was initially concerned that the lump sum payment exceeded the earned income limit and so would not be allowable. However I'm now pretty convinced that the earned income limit only applies to tax relief eligibility and that as no tax relief is being claimed it does not apply in this case.
So the important limit is the £40K annual allowance which the PIA may or may not exceed. However PIA for the previous 3 years has been low. Max £5K per year. So I think she is fine to make the planned contribution and in fact could contribute a lot more if desired. Possibly up to a PIA of 40+(3X35)=£145K. which could allow a lump sum added pension contribution of at least £100K this tax year.
Comments please. I'm ready to be shot down in flames if necessary. Input from @zagfles would be much appreciated, though you must be sick to death of replying to this subject matter.

The other possibility is giving TPAS a call - they usually have people around who are 'experts' on particular schemes, as well as pensions generally. https://www.pensionsadvisoryservice.org.uk

NedS

TcpnT said:

3. How does the offer of £500pa for £10000 lump sum paid at 58 compare to other public service pension schemes - good value or not? Obviously better than annuity rates but not nearly as good value as topping up to full state pension entitlement if record is not full.

For comparison purposes, using the added pension calculator for the Civil Service Alpha scheme, for a woman aged 58 gives quotes of £740pa for self or £688 for self and partner/dependents, for a £10,000 lump sum purchase, payable at State Pension Age of 67.

However, in your case the friend can draw the pension at aged 60 so we would need to apply the actuarial rate to reduce the above quote as if taken early at age 60 to obtain a like for like comparison. The alpha actuarial rate for someone aged 67 taking their pension at 60 is 0.687, and £740 x 0.687 = £508 so the quotes seem comparable to me.

zagfles

TcpnT said:

TcpnT said:

I've had another chat about this with her. She definitely plans to stay until 60 and wants to do all she can to take advantage of the added pension at 60. With this in mind she would like to make as large lump sum contribution as possible this year and next. Whilst I thought I had Annual allowance  and tax relief rules clear I am am struggling to work out what is possible here.
Her only UK earnings are from her Army Reserve work. I don't know the exact amount but let's assume £5000pa. Well under income tax personal allowance so no tax payable.
So assuming she paid a lump sum of £40K (coincidentally same as annual allowance but could be less if necessary and more if possible) to gain added pension of £2000 per year her pension input amount for the year  could be around £40k. The question is whether, with low earnings, no tax paid and no tax relief claimed is she allowed to make a contribution of this size. In this situation what determines the maximum contribution allowable?

After a lot of further reading I'm going to try and answer my own question here. Although I titled the thread "Armed Forces Pension" the question is actually a lot more general and is really about the the treatment of lump sum payments for additional/added pension in CARE schemes in terms of annual allowance.
For my example above annual earnings are circa £5K therefore no income tax is paid. A lump sum payment of £40K this tax year will purchase approx £2000 of annual pension from age 60. The exact Pension Input Amount for 20/21 cannot be known until after the end of the year but with this increase to the annual pension is likely to be around £40K as well. It may be less but it could well be more because I don't know the exact details of previously accrued pension in the scheme.
I was initially concerned that the lump sum payment exceeded the earned income limit and so would not be allowable. However I'm now pretty convinced that the earned income limit only applies to tax relief eligibility and that as no tax relief is being claimed it does not apply in this case.
So the important limit is the £40K annual allowance which the PIA may or may not exceed. However PIA for the previous 3 years has been low. Max £5K per year. So I think she is fine to make the planned contribution and in fact could contribute a lot more if desired. Possibly up to a PIA of 40+(3X35)=£145K. which could allow a lump sum added pension contribution of at least £100K this tax year.
Comments please. I'm ready to be shot down in flames if necessary. Input from @zagfles would be much appreciated, though you must be sick to death of replying to this subject matter.

You seem to have understood it. The "earned income limit" is a limit on tax relief, not on contributions. So if no tax relief is being claimed, there is no limit. See https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm041000

And yes as far as the AA goes, with carry forwards and assuming £5k PIA per year for the last 3 years, this year's PIA could be £145k before an AA charge. (assuming the MPAA doesn't apply - ie she's not flexibly accessed any pensions)