Refund of pension contributions-taxable?

DeliaD33
Forumite Posts: 2
Newbie

My son was auto-enrolled in a LGPS when he started work last year. He was not a tax payer, his income was below the income tax threshold. He was only employed for 6 months. He has been offered a refund of his pension contributions less a 20% deduction for tax. If he was not a tax payer, is it correct that he should pay tax on the refund? The total contribution figure matches the sum deducted from his salary so it isn't as though he is being asked to repay 20% because of a tax break. Can anyone help by explaining this to me please?
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Comments
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They are taxable and the tax is not refundable, irrespective of his tax position.
It's generally a poor choice (financially) to opt for a refund like that.
Has he asked what the transfer value would be to transfer to a defined contribution scheme? He won't be able to access it till he's 57/58 but might be surprised at the difference!2 -
See https://www.lgpsmember.org/your-pension/thinking-of-leaving/leaving-before-retirement/ and read the section headed 'Leaving without deferred benefits'.
As others have already said, there is an alternative to taking a refund of his own contributions - transferring his LGPS benefits to a pension of his own choice, in which case he'd get the benefit of something from the employer to add to his future pot.Googling on your question might have been both quicker and easier, if you're only after simple facts rather than opinions!2 -
It's a refund tax, and absolutely nothing to do with income tax. It's just co-incidence that both are currently 20% - that wasn't always the case.
As Dazed and Marcon have said, a transfer to another pension scheme would be a much better option.2 -
Thank you all for your comments. The transfer value is about 4 times more than the refund he has been offered. He's 23 and doesn't have a pension so maybe it's an opportunity for him start one.1
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DeliaD33 said:Thank you all for your comments. The transfer value is about 4 times more than the refund he has been offered. He's 23 and doesn't have a pension so maybe it's an opportunity for him start one.
Definitely 😀1 -
Easy to do and Hargreaves Lansdown is fine for small amounts and has a good website (others are available). He could open a SIPP online with them with a few pounds ready for the transfer.
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If your son get employed with access to LGPS again and the employer allows transfer in then he actually transfer his pension fund in which buy pension at a generous rate which then mean minimum length of service no longer applied. 😀
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