DB when used up allowable TF cash

Doglegger

I'm wondering if anyone knows or has had a similar situation. I have a future DB payment with TF lump sum and am curious as to how it will be handled if I've withdrawn the max allowable TF cash of £268k before then.
It's a small forces pension and I've asked Veterans UK directly but they just linked me to HMRC's LTA explanation.
Would they pay the lump sum and I'd just be taxed at my nominal rate on it or would they absorb it back into the pension and I'd get a higher monthly payment? Or would I lose it completely?

Brie

I've never seen a DB pension where you can withdraw the TFLS and not be putting the pension into payment.  If it's a Tax Free Lump Sum then there would be no tax on it whatsoever.  

So if you got the TFLS and then were being paid a pension of £30k a year you would pay tax at the normal rate on the £30k.  The TFLS would be ignored completely.

The DB schemes I've seen normally have the option of a TFLS which you decide if you want or not.  I'm not sure what happens if you don't take it - maybe you get the first portion of your pension payments tax free.  

Doglegger

Brie said:

I've never seen a DB pension where you can withdraw the TFLS and not be putting the pension into payment.  If it's a Tax Free Lump Sum then there would be no tax on it whatsoever.  

So if you got the TFLS and then were being paid a pension of £30k a year you would pay tax at the normal rate on the £30k.  The TFLS would be ignored completely.

The DB schemes I've seen normally have the option of a TFLS which you decide if you want or not.  I'm not sure what happens if you don't take it - maybe you get the first portion of your pension payments tax free.  

The DB in question will be going into payment when the time comes. That bit I'm happy with. It's the TFLS that comes with it that I'm unsure of how it will be handled if I've already used up all my allowable TF cash prior to it going into payment. 

Linton

Brie said:

I've never seen a DB pension where you can withdraw the TFLS and not be putting the pension into payment.  If it's a Tax Free Lump Sum then there would be no tax on it whatsoever.  

So if you got the TFLS and then were being paid a pension of £30k a year you would pay tax at the normal rate on the £30k.  The TFLS would be ignored completely.

The DB schemes I've seen normally have the option of a TFLS which you decide if you want or not.  I'm not sure what happens if you don't take it - maybe you get the first portion of your pension payments tax free.  

Its a bit confusing but I think there are 2 DB pensions.  A large one which has been taken using up the LTA TF allowance and a small one the OP wishes to take.  So the question is on the tax treatment of the TFLS from the small pension.

OP - please  correct me if I am wrong.

Brie

Maybe some actual numbers would help, i.e. DB1 TFLS £268k and monthly payments of £XX, DB2 potential amounts.....

Marcon

Doglegger said:

Brie said:

I've never seen a DB pension where you can withdraw the TFLS and not be putting the pension into payment.  If it's a Tax Free Lump Sum then there would be no tax on it whatsoever.  

So if you got the TFLS and then were being paid a pension of £30k a year you would pay tax at the normal rate on the £30k.  The TFLS would be ignored completely.

The DB schemes I've seen normally have the option of a TFLS which you decide if you want or not.  I'm not sure what happens if you don't take it - maybe you get the first portion of your pension payments tax free.  

The DB in question will be going into payment when the time comes. That bit I'm happy with. It's the TFLS that comes with it that I'm unsure of how it will be handled if I've already used up all my allowable TF cash prior to it going into payment. 

As things stand and assuming all the relevant legislation has been enacted and remains in place, in the scenario you describe you won't be able to take any tax free cash from your DB scheme unless you already have some sort of protection in place.

Probably best to ask the scheme how they would handle this - could be interesting where schemes have benefits which automatically include a lump sum so commutation is effectively 'automatic' rather than optional. Just giving you a link isn't an adequate response, so go back to them and ask for specific information - although in fairness to the scheme, they may not yet have finalised their procedures.

Albermarle

I believe the detailed legislation around many similar issues is still under review.

Doglegger

Linton said:

Its a bit confusing but I think there are 2 DB pensions.  A large one which has been taken using up the LTA TF allowance and a small one the OP wishes to take.  So the question is on the tax treatment of the TFLS from the small pension.

OP - please  correct me if I am wrong.

Thanks Linton. Yes, that's correct. I tried to be brief but obviously confusing.

Albermarle

Doglegger said:

Linton said:

Its a bit confusing but I think there are 2 DB pensions.  A large one which has been taken using up the LTA TF allowance and a small one the OP wishes to take.  So the question is on the tax treatment of the TFLS from the small pension.

OP - please  correct me if I am wrong.

Thanks Linton. Yes, that's correct. I tried to be brief but obviously confusing.

I understood what you were asking, it was one of the reply posts that was confused. 

Doglegger

Marcon said:

Doglegger said:

Brie said:

I've never seen a DB pension where you can withdraw the TFLS and not be putting the pension into payment.  If it's a Tax Free Lump Sum then there would be no tax on it whatsoever.  

So if you got the TFLS and then were being paid a pension of £30k a year you would pay tax at the normal rate on the £30k.  The TFLS would be ignored completely.

The DB schemes I've seen normally have the option of a TFLS which you decide if you want or not.  I'm not sure what happens if you don't take it - maybe you get the first portion of your pension payments tax free.  

The DB in question will be going into payment when the time comes. That bit I'm happy with. It's the TFLS that comes with it that I'm unsure of how it will be handled if I've already used up all my allowable TF cash prior to it going into payment. 

As things stand and assuming all the relevant legislation has been enacted and remains in place, in the scenario you describe you won't be able to take any tax free cash from your DB scheme unless you already have some sort of protection in place.

Probably best to ask the scheme how they would handle this - could be interesting where schemes have benefits which automatically include a lump sum so commutation is effectively 'automatic' rather than optional. Just giving you a link isn't an adequate response, so go back to them and ask for specific information - although in fairness to the scheme, they may not yet have finalised their procedures.

Thank you for that. No protections unfortunately. The question I put to the scheme was more detailed than what I posted above but they had no answer to it. I'll give it another go and ask if they are waiting on any clarification on the procedure. I've trawled through AFPS sites to see if there was any similar experiences or examples but nothing there either.

Doglegger

Albermarle said:

Doglegger said:

Linton said:

Its a bit confusing but I think there are 2 DB pensions.  A large one which has been taken using up the LTA TF allowance and a small one the OP wishes to take.  So the question is on the tax treatment of the TFLS from the small pension.

OP - please  correct me if I am wrong.

Thanks Linton. Yes, that's correct. I tried to be brief but obviously confusing.

I understood what you were asking, it was one of the reply posts that was confused. 

I knew you knew!