Civil Service Pension & Tax

Silvertabby

My answers in bold ..........

Catonthemoon said:

@Silvertabby @DE_612183  After several assessments by the Scheme Medical Advisers, I was eventually granted IHR. This is different to being dismissed on the grounds of ‘medical inefficiency’ (usually because of lengthy absences due to health reasons).

Shortly after, I received the claim forms. There weren’t any boxes to tick ie ‘I wish to claim now’ or ‘ I wish to defer’…the forms just weren’t returned!

Your initial application for ill health retirement was your application for immediate pension benefits.  The forms you received would have just asked you for your standard pension/reduced pension plus commuted tax free lump sum options, and your bank details.  MyCSP should have chased the forms, as the scheme rules do state that ill health benefits must be paid immediately.   Did you receive any phone calls or chaser letters? 

Several years later, I contacted MyCSP to find out the state of play with my pension. I was advised that (a) it would be back-dated & (b) I didn’t have to take it now; I could leave it unclaimed until 75 (at the latest).

A simple matter of getting the right answer to the wrong question?  When you rang MyCSP did you tell the person you spoke to that you had been awarded an immediate, enhanced, ill health pension some years ago?  If not, then it would never have occurred to the administrator that they were dealing with anything but normal deferred benefits.  

Knowing there was no pressure, I decided to leave it until the time was right for me.

When I lost the job, I had applied for ESA & HB as I had no other sources of income or savings. Shortly after, my IHR application was successful. Was I required to notify the DWP & the Local Authority? I always had previously ie when savings exceeded £6k, but, in these circs, no payments have actually gone into my a/c.

I'm not an expert in State benefits, but suspect that yes, you should have told DWP etc that you had been awarded an immediate ill health pension.  Your means tested benefits would then have been adjusted to account for this income.
 
When I posed the question about my tax, it was only then that the whole business of notional income, potential overpayments/recovery, was brought to my attention. 

I’ve spent a lot time trawling through HMRC/DWP manuals together with viewing the advice/comments on various threads on here. 

Conclusion: it all seems so confusing & complex; contradictory interpretations of the rules & regs etc; honestly, it would give a woodpecker a headache!!

The $64000 question is : where does all of this leave me?

I doubt that many prior such cases exist, if any, so I'm afraid that you are unlikely to find an definite answer on these boards.  Can only suggest that you take it a step at a time starting with claiming your arrears, sorting the tax out, and then seeing what DWP have to say about your means tested benefits.  

Catonthemoon

@DE_612183 (re: your post of 23 June 4.20)

I think I will approach this by waiting to see how MyCSP will deal with this situation (whenever that may be), before raising any complaints with either them or the Ombudsman. If it causes me to be disadvantaged financially, then I would consider those options, but, it goes without saying, I would like to have the best possible outcome.  Cotm

Marcon

DE_612183 said:

Looking at all that I think you have been mis-informed by MyCSP and I'd be looking to raise a complain with them about the advice you have been given and the way your pension has been administered - as others have said you should have been paid out from day 1 whether you wanted to or not - this has now led to a state where when you are paid you you could find yourself substantially out of pocket through no fault of your own.

You could also try the pension ombudsman if you get no joy with MyCSP - which as they are losing the contract in about 3 months time I wouldn't' hold out much hope of any joy from them....

A complaint about what, exactly? 

There is no option under the Regs to defer an ill health pension; all the forms, information etc make it clear that payment is 'immediate'.

You can't force someone to start taking their pension - for starters, you need to know their bank details. The old-fashioned alternative of putting the cheque in the post doesn't work either; the recipient can't be forced to cash it. There is also the matter of how much tax free cash they wish to take - in this case it's an automatic 3 x annual pension, with the option to increase that lump sum by giving up some of the regular pension income.

The idea that the current mess is through 'no fault of [their] own' is absurd. They deliberately chose not to return the forms in order to delay payment, with the objective of claiming state benefits to which they would not otherwise be entitled.

At no point do they appear to have felt any need to check the position with DWP or their local council, despite the fact there had been a clear 'change of circumstance' (being granted an ill health early retirement pension, payable immediately - see https://www.gov.uk/report-benefits-change-circumstances which includes a requirement to report a change to 'your pension, savings, investments or property') so they have to live with the consequences of their own actions, whatever those consequences might be.  It is the fact the pension would be backdated that makes it abundantly clear that the entitlement arose at the date IH retirement was confirmed. 

If a member chooses to delay the provision of essential information, and asks how long they can go on delaying (not the same thing as deferring), the only possible answer would surely be the general one that 75 is the latest date for claiming Classic benefits (although again, MyCSP can't make a member do so once they hit 75) + confirmation that payment would be backdated to when OP's ill health claim was accepted.

Two hopelessly complex worlds have collided - and I for one have no idea what the fallout will be. 

Catonthemoon

Marcon said:

molerat said:

Catonthemoon said:

............................

The $64000 question is : where does all of this leave me?

Needing to seek the views of a Citizens Advice or Law Centre benefits specialist

I think it might need to be even more 'specialist'. OP, try sending a message to Paul Treloar (https://www.rightsnet.org.uk/Forums/viewthread/20734/#97048 - you'll need to sign up for a free account) and also Steve Webb (https://www.thisismoney.co.uk/money/pensions/article-14114353/Taking-NHS-pension-Universal-Credit.html).

I'd be tempted to simply send them the link to this thread and add a covering note that you are struggling to understand the position where someone has been granted an ill health early retirement pension from the Civil Service Classic Pension Scheme but not taken it immediately, and wonder if they could shed any light on how this impacts on (a) the state benefits you have been claiming and (b) the income tax treatment of the backdated ill health pension payment?

If they want any more information they'll ask you for it, so I wouldn't spend ages fretting over what to include in your initial approach. 

Thank you for this. I shall follow your advice & run this past Paul Treloar. Hopefully, he’ll be able to offer some guidance on the best way to proceed and/or where I stand. Cotm

Catonthemoon

@Silvertabby

Apologies for the delay in replying to your post.

MyCSP should have chased the forms, as the scheme rules do state that ill health benefits must be paid immediately.   Did you receive any phone calls or chaser letters?  No

When you rang MyCSP did you tell the person you spoke to that you had been awarded an immediate, enhanced, ill health pension some years ago?  If not, then it would never have occurred to the administrator that they were dealing with anything but normal deferred benefits.  Not exactly (ie I didn’t say “I have been awarded an IHR pension”), however, it was evident from the conversations I had with myCSP that it was an ill health pension we were discussing. Furthermore, email exchanges between myself & myCSP reference my ill health pension, so it should have been abundantly clear to the administrator that my situation did not concern ‘normal deferred benefits’.

What do you think is the significance (if any) of both of those questions you have asked?

Thank you, Cotm

Silvertabby

Catonthemoon said:

@Silvertabby

Apologies for the delay in replying to your post.

MyCSP should have chased the forms, as the scheme rules do state that ill health benefits must be paid immediately.   Did you receive any phone calls or chaser letters?  No

When you rang MyCSP did you tell the person you spoke to that you had been awarded an immediate, enhanced, ill health pension some years ago?  If not, then it would never have occurred to the administrator that they were dealing with anything but normal deferred benefits.  Not exactly (ie I didn’t say “I have been awarded an IHR pension”), however, it was evident from the conversations I had with myCSP that it was an ill health pension we were discussing. Furthermore, email exchanges between myself & myCSP reference my ill health pension, so it should have been abundantly clear to the administrator that my situation did not concern ‘normal deferred benefits’.

What do you think is the significance (if any) of both of those questions you have asked?

Thank you, Cotm

It was remiss of MyCSP not to have chased your pension paperwork.  I am unable to say why that may have been - one for the office manager to review.

I'm still inclined to believe that the person you spoke to didn't click that you had been awarded an immediate ill health pension, probably because the notion that that someone who had actively pursued - and been awarded - an ill health enhanced pension would then decline payment was just beyond their ken.  More likely they thought that you held normal deferred benefits, and were applying for them to be brought into payment on ill health grounds?

How far are you along with your backdated payments being made?  Has the tax question been addressed yet?

noitsnotme

What were your reasons for not returning the pension claim forms 12 years ago?  That might be a question put to you by DWP.

Marcon

Catonthemoon said:

@Silvertabby

Apologies for the delay in replying to your post.

MyCSP should have chased the forms, as the scheme rules do state that ill health benefits must be paid immediately.   Did you receive any phone calls or chaser letters?  No

When you rang MyCSP did you tell the person you spoke to that you had been awarded an immediate, enhanced, ill health pension some years ago?  If not, then it would never have occurred to the administrator that they were dealing with anything but normal deferred benefits.  Not exactly (ie I didn’t say “I have been awarded an IHR pension”), however, it was evident from the conversations I had with myCSP that it was an ill health pension we were discussing. Furthermore, email exchanges between myself & myCSP reference my ill health pension, so it should have been abundantly clear to the administrator that my situation did not concern ‘normal deferred benefits’.

What do you think is the significance (if any) of both of those questions you have asked?

Thank you, Cotm

Nothing alters the fact that you applied for immediate payment of an ill health pension (there is no provision in the rules to delay payment and the forms you completed made it clear that if granted, payment would be immediate) and then frustrated the scheme's attempts to put it into payment by failing to supply your bank details. 

You then deliberately chose not to notify DWP/your local council of your change of circumstance (ie the granting of an immediately payable ill health pension), hoping that this would somehow enable you to go on claiming means tested benefits until you saw fit to draw the pension - a situation you have allowed to continue even though you are now past the scheme's normal retirement age.

Burying your head in the sand (tempting as it must be) isn't going to alter the fact that you have been claiming means-tested benefits to which you were never entitled, and will need to repay these. The sooner you address this the better; the position will only get worse for you the longer you leave it.

NorthYorkie

Most of the responses above deal with the consequences of having claimed various State benefits, I am only going to concentrated on the tax position in respect of the Civil Service pension about to be paid.

As has been pointed out, the strict Statutory basis of assessment is the amount to which you are entitled in the tax year. However, for convenience the amount usually taxed is the amount received in the year, as there is normally very little difference (e.g. when I receive my state pension on 8 April, the entitlement to most of that payment arose in the preceding tax year.) The extract from the HMRC Manual referred to earlier makes it clear that where arrears of pension are received, the taxpayer can ask for the statutory basis to apply (i.e. spread the arrears back over the years in which entitlement to those sums actually arose.

The question then is "when did entitlement to these amounts actually arise?". Was it automatically on retirement or was it only when you actually claimed the pension?

Those with more experience of the Civil Service scheme have said that your entitlement to the pension would have been immediately on retirement on ill-health grounds. This makes sense. If your employment ends because of ill-health, it is only right that you should be immediately provided with pension benefits. The fact that you did not complete the forms sent to you does not cancel out that entitlement. (Although I would expect the pension administrators to chase up those forms, you have no grounds for complaint on this score; you made a conscious decision not to return the forms.)

I am therefore of the opinion that you would have a valid claim to have the arrears referred back to the years in which you were entitled to them. The arrears when paid will still have PAYE tax deducted at source in the year of payment, but once the earlier years have been sorted out, that excess tax should be repaid. However this can get messy and involve the Revenue making discovery assessments with the possibility of charging interest and penalties (i.e you were entitled to income in those years on which you didn't notify them that you were liable to tax.)

As we are not in a position to calculate the possible outcome on the tax position, i.e. what the net repayment might be, you need to do some number crunching to see whether it would be advisable to go down the 'entitlement' route or not.

The position with regard to State benefits is another matter.