Teachers' Pension Scheme: Rollback Choices (Faster Accrual)

flexibilly

PS If you think working out the interest component from your historic flexibilities contributions is easy, two things to say:

a) first, you'll need to go through all your old payslips, as they've already removed all the historic contribution data for the remedy period from the TPS website (you can see me working through that process in my earlier calculation posts, and via my linked script) - it's hard work

b) you're left guessing about the historic tax calculations they applied; I guessed, based on my circumstances through the remedy period, 20% throughout, and that looks like it was about right (my total payslip contributions were 10,707.92 * 0.8 = 8,566.34, matching their figure above pretty closely) but for other teachers the historic tax situation may have been much more complicated...

hugheskevi

For Remedy, interest can be treated in one of three ways in most cases (there will be situations where it would be an unauthorised payment, but that is unlikely to be the case in most schemes) depending on what it relates to:

• As part of a Pension Commencement Lump Sum (PCLS), if a member is due underpaid PCLS. If there is unused PCLS then the interest relating to the lump sum can be included within the PCLS.
• As a Scheme Administrator Member Payment (SAMP) - this is treated as savings interest
• As compensation, which is free of tax

Clearly this is not interest relating to a PCLS, which leaves it being either a SAMP or compensation. To me, it appears to clearly be interest in relation to compensation and hence not taxable. 

Which raises the questions about the wonderfully ambiguous statement about 'may be taxable'. Does this suggest that the administrator considers that it will be taxed as savings income, but no tax would be due if the amount falls within 0% bands, hence tax may or may not be payable. Or is it simply a generic statement that gets put on everything where interest is payable. 

I wonder what exactly TPS expect members to report to HMRC? Why not include a sentence assisting members about what to declare to HMRC, so there is clarity about what type of payment you have received. HMRC's response may be very different to a declaration of £2,285.56 of interest relating to compensation than it would be to someone declaring £2,285.56 of untaxed interest with no further clarification.

There are likely to be other areas of the process where members may be expected to make a decision without being aware of all the key details, most notably members who have already taken their pension and may have Annual Allowance charges. The legislation only requires schemes to provide the tax details (essential to determine tax consequences) once a member makes their irrevocable decision.

flexibilly

The full amount hit my account today, 10 days after I completed the online form. More potentially useful information for others. I thought I might have to wait until the October 1 deadline, but I was wrong.

I feel I have to make contact with HMRC and let them decide re tax on interest. But I would also hope to make the case for it being interest on compensation. Does anyone have any advice for contacting HMRC over an issue like this? I don't really want to telephone as I want an easy written record of what has been said. Webchat, or write a letter? Or I can see various links through the gateway for "tell us about other income". But this just seems like it will inevitably end up with me paying the tax; I do actually want someone to consider whether tax is genuinely due... I will probably write to them if noone advises otherwise.

I have to say again that I think the TPS explanation (or lack of it) of the compensation offer, is way below what the members involved could reasonably expect. Both i) not giving the division between compensation/interest until the decision is taken*, and ii) not indicating that tax might be due on the interest component (the value of which is unknown to the member at the time of them taking their decision). If tax is in fact due (and presumably this is just a sort of "refund" via SAMP), then the use of the word "compensation" in their online literature and in their correspondence with members seems very misleading.

If I can muster the energy, I feel I should raise a complaint, but what good would it do. It will be resolved, via the pension ombudsman I guess(?), way after all affected members have made their decisions.

At least you have some forewarning of the uncertainty if you've found this thread and you're yet to decide...

* perhaps I am harsh given @hugheskevinotes there are precedents, but I can't see any good reason for the lack of information; both the compensation and the interest components have to be calculated by TPS in order for them to write the very first letter to an affected member (which contains the total value of the offer - see also my original "Your rollback options" post).

hugheskevi

I agree that I would not telephone HMRC. I would not use webchat either, as I wouldn't expect the person at the other end to be sufficiently skilled in what will be a niche and new area, nor empowered to determine whether you have a charge to pay or not and so would simply direct you elsewhere, maybe to Self Assessment even.

Email would be good, any online portal allowing free-text would be fine, but a quick look at HMRC contact us details don't seem to have anything other than snail mail available unfortunately.

I think you need to focus on Newsletter 156 and the section:

Interest on compensation

Where interest is paid under a provision to pay compensation in the Public Service Pensions and Judicial Offices Act 2022, including interest on overpaid contributions, it is not taxable.

Regulation 44 of the Public Service Pension Schemes (Rectification of Unlawful Discrimination) (Tax) Regulations 2023 (SI 2023/113) exempts compensation payments from income tax and capital gains tax.

The interest will be exempt from tax regardless of the rate at which it is paid.

in conjunction with the text from the letter setting out the compensation and interest you have been paid (probably best to enclose a copy of that).

flexibilly

Thank you @hugheskevi I will do exactly this.

There are so many possible postal addresses via the main hmrc contact us page, but if you click the "any other taxes or HMRC services" button, and search "pension" you find...

~ This pension scheme enquiries page, which mentions amongst other things:

"

Use the online form, call or write to HMRC to get help with queries about:

[...]

compensation and tax changes due to the public service pensions remedy

[...]

"

~ This postal address:

Pension Schemes Services
HM Revenue and Customs
BX9 1GH
United Kingdom

So this is the postal address I plan to use, and I will update here as soon as I hear anything back...

woodsidermum

Apologies if I've missed this bit of the trail, I did try to look but I couldn't see anything on INCORRECT calculations made by TPS.

They sent me a letter this week, about a month after I'd made the election saying that they had quoted me incorrect figures. I'd like to flag this in case anyone else is in the same position.

I had bought additional pension in the career average scheme from 2015-2022 that is all now rolling back to final salary and as such, the amounts bought would be lower per year than initially quoted. I'm someone where, if I wait to 67, I'll actually be better off with career average than final salary, based on current predictions, so it could make sense just to say, don't roll those back, I'll take that period as career average. However, I'm also now working fractionally (thank you COVID-19). So a lot of my previous thinking has changed and I essentially have to assume that whatever I think will be the case now, may change again, so I thought it best either to take the compensation now, or make the decision to take compensation but defer when I get it (for the various reasons previously outlined in this trail).

Last month, I opted for option 3, deferred compensation. This was in part because the initial calculations that they sent me worked out at about 9k more in compensation than I'd initially paid in, so a very fair looking deal and I didn't want to have to pay additional tax on taking it this year.

However, last week, they wrote saying "oops, we told you the wrong figures", here are the right ones for your compensation amount and total paid in (but nothing about the annual benefits, if I would have been able to change my elective). My total paid in, is unaltered but the compensation payment has dropped by 10K and I'd now be getting less back than originally paid in. 

I'm now in the position that I would, if given the option, change my elective as the compensation isn't a good deal, but keeping the additional payment in one or other form, would still be sensible. They didn't originally offer me that choice, they didn't even tell me how it was possible for them to have made an error in calculating the compensation amount (I'm guessing it's to do with the ways they get/impute tax information).

Cue one of the snottiest complaints I've yet sent. I'm still waiting for a formal response to that complaint but this morning, I received another letter from them. It has no tie in with the previous messages and is sent as though I'd never been sent anything at all on rollback. It's a fresh statement, with the right figures and giving me the option to make an elective again.

So, I'm at least back to square one with proper information but that's not what happened by default and it's all yet another example of Capita crappiness. I know that they are moving from Capita in the next couple of years and do dread to think of what horrors we'll all be uncovering in the process.
Anyway, a long post, sorry but I do urge you to look out for messages, even if you think you've sorted out the election. They are clearly making errors.

woodsidermum

PS, another really REALLY useful video from Dave Fountain (I can't post links here so close the gap in the next string... https: //youtu.be/r2ZqnS7SpI4 here made me look again at the so called corrected quotation. It's got the lower compensation figure now (which allows for some indexation, has had some interest applied and would not be subject to further tax), but the figures for the additional benefit, are sitting there without any indexation applied.

I.e.  it knowingly provides lower rates of additional pension than you would actually get. So, if you try to work out how long you would need to be in receipt of the additional pension before you got back the compensation amount (with additional interest), you're going to think it will take longer than it actually will. It's thereby skewing the compensation to look better value than it acutally is.

flexibilly

I got the reply below from HMRC today. For anyone else considering writing to the postal address mentioned above (or using the email address below), the reply came to my personal email address, which I included on my letter, and it took approx. 2 weeks to arrive (my letter was actually dated 28 May).

"
Thanks you for your letter of 20 May 2024.

Ruling established in Public Service Pensions Remedy legislation state that any flexibilities purchased in the new career average scheme cannot be rolled back. Regulation 44 of the Public Service Pension Schemes (Rectification of Unlawful Discrimination) (Tax) Regulations 2023 (SI 2023/113) exempts compensation payments from income tax and capital gains tax.

On this basis, an amendment to your tax code would not be necessary as the compensation interest is not taxable.

If you have any further questions, please contact our team either by telephone - 0300 123 1079 or email - publicservicepensionsremedy@hmrc.gov.uk.

Kind regards,
[...]
"

All the usual plaudits to @hugheskevi - it's amazing that you know so much. But it's equally amazing to me that TPS members have to come to online forums for some clear guidance on the rules surrounding their compensation offers.

I hope others with Rollback Choices to make find this thread.

Thanks again @hugheskevi - if you or anyone else thinks of anything useful to add, then please do, but I think that's it re my own Rollback Choices experience... Thanks everyone who contributed.

Anon

Thank you for the detailed commentary and discussion on this thread. 

I have been going through this with a family member and from the comments above we understand the compensation amount is not taxable.

Relating to Additional Pension, if someone were to accept the compensation option, what happens to the tax treatment of the years where the payments were actually made? Do they get re-opened/recalculated for each year where Additional Pension was bought? Sorry if this has already been answered.

Thank you

hugheskevi

Anon said:

Relating to Additional Pension, if someone were to accept the compensation option, what happens to the tax treatment of the years where the payments were actually made? Do they get re-opened/recalculated for each year where Additional Pension was bought? Sorry if this has already been answered.

The tax position for past years all remains the same regardless of what is decided.

If compensation is selected, the calculation of the amount of compensation takes into account tax relief. For example, if a higher rate taxpayer paid £10,000 for Additional Pension in 2017/18 and selected the compensation option, the scheme would start the compensation calculation from £6,000 being owed in 2017/18 and apply interest to that figure to bring it up to the payment date.