Annuity Payment Allowance in coding notice....

Funkyfreddy

Not sure if this is for the Pensions or Tax forum but I'll try here first if that's ok...

Helping a neighbour register for his Personal Tax Account and current SP forecast threw up that his current tax code, recently issued for a pension he's just started to receive includes an "Annuity Payments Allowance".

The term Annuity was alien to him but it turns our that for what maybe the better part of 40 years he's been making a quarterly payment of £180 to "The Prudential" - I took a guess and suggested that these payments/contributions were going to some sort of Annuty Policy he took out and that these were Gross rather than net (the concept of tax relief also alien).

The coding allowance nicely matches these annual payments. Only issue that from the 2017/18 tax year on there are no earnings that would take advantage of the coding allowance.

Aside from suggesting to find out more as to exactly what policy/pension he has I also suggested he should be able to claim for the relief he hasn't seen over the four years to 2020/21 direct with HMRC.

Would that be correct ? Or as an afterthought is this rather like somebody with earnings below the Basic Rate threshold making contributions through Net Pay and not benefiting from relief in the way they would when contributions into a RAS scheme ?

Will he just miss out as it were ?

Thanks for any insight.

Dazed_and_C0nfused

If it's not RAS then I don't think he can get any tax relief if no tax has been paid.

Funkyfreddy

Thanks Dazed, the concept was hard enough to get across - I might suggest he just sends a submission asking for relief as the allowance couldn't be taken advantage of and see what comes back  but warn him it might be nothing.

I think there has been some recent movement on looking at the imbalance for lower earners not seeing relief though net pay when they would through RAS even if with the latter you never paid any tax.

Jeremy535897

If it started 40 years ago it may well be a retirement annuity contract. Unfortunately this is worse, not better, than paying into a personal pension, described as RAS above (relief at source).

If this were a personal pension, the £720 put in would be augmented by £180 from the government, so £900 would be added to the pension scheme. So long as net payments are £2,880 or less a tax year, it does not matter than the payer has no relevant earnings.

However, if the payments are to a retirement annuity, only the £720 will go into the pension scheme, and there will be no tax relief on the contribution, as it can only be set against relevant earnings (earned income). Even if there are relevant earnings, that doesn't help if there is no tax liability. He could speak to Prudential and ask them to change it to a RAS arrangement.

Funkyfreddy

Thanks Jeremy, yes I realise that  and tried to highlight that' whilst £180/3mths 40 years ago might have seemed alot not increasing it over the years has not been the best of moves. 

I don't really want to get involved anymore than I have but sadly he's very old school, with no real understanding of finance issues.

It seems as a result of a call to the Prudentual about this policy  he was informed about "another pension" he was unaware he had with them...I suspect as he has a COPE of £30'ish this was some former employer Contracted Out Scheme. He has had a visit from a Prudentual suggested FA/IFA and is now receiving an income from this (no idea if annuity purchase or drawdown) but it seems it was suggested he "leave the other one alone for the time being" - no apparent suggestion of changing/transfer to a new product or even combining with a couple of other smaller schemes he has.

I've mentioned he's missed out over the 4 years as a non earner of £720 but the understanding..or will to consider I doubt is there.

When did the  RAS system start out of interest ?

[Deleted User]

1st July 1988

Funkyfreddy

Thanks Purdy...so the start date of this policy probably predates that and  a tax code allowance was standard at the time..?

I guess HMRC would just reject a claim for relief...

[Deleted User]

Funkyfreddy said:

Thanks Purdy...so the start date of this policy probably predates that and  a tax code allowance was standard at the time..?

I guess HMRC would just reject a claim for relief...

From memory no new RAR plans could be initiate from that date - that would have been the only way to obtain relief under PAYE. 

I remember it well as the advice at that time was to contract out of SERPS (depending on one’s age) - the less said the better!

Funkyfreddy

I suspect this policy may well have been "taken  out" on/around the same time as perhaps Contracting Out was done - perhaps with somebody that came into the workplace at the time.

The fact there has been an "unknown" Pension with the same provider is bit coincidental....I'm sure he has been receiving documentation for both but  content has not been understood or just ignored...."anything over a couple of years old I shred"..

Jeremy535897

Prudential themselves highlight the issue:
https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/tax-relief-members-contributions/

[Deleted User]

That is exactly what happened! The pension providers viewed the ability to contract out of SERPS as a huge opportunity to sell an additional plan - but it could not have been an RAR policy which were closed to new investors at that date.