Stepped Pension

ray4221

Hi

I had to stop work due to ill health and am due to take a small BAe pension this year aged 65. The pension has a stepped option which makes sense for me because my analysis shows taking the stepped option pays the most over 12 years which is probably all I have got.

The figures:

Basic pension £5000

Stepped pension £12000 for 1 year until NRA

However I have been told this increases my pension 'pot' from:

£80000 = (£5000 x 16) To £192000 = (£12000 x 16)

Difference = £112000

(Factor of 16 which I was told HMRC use to estimate the pension pot).

I have been told HMRC assume this 112k is a single contribution in a tax year and as it is a discretionary award it will be tested against the Annual Allowance.

I have no other income and unable to make pension contributions that would allow tax relief (other than the 2.88/3.6k which I have done).

It seems to me if I took the stepped pension I would have to pay a 25% tax charge on the HMRC perceived £112k pension contribution. i.e. £28k (112k x 25%) in a pension tax charge.

This seems crazy, can anyone shed light on where I have gone wrong or if this is in fact the case?

Moneyhelper have been very helpful but cannot answer this, Aptia, the pension administrator are no help at all. I am waiting for a call back from HMRC but I don’t know if I have that long to wait....

Ray

Silvertabby

How much will your stepped pension be after NRA/SPA?  

xylophone

OP, do you have a copy of the Scheme Guide? If so, presumably details (with examples) of the way this option can work are provided?

Otherwise, you can obtain a copy through Scheme web site?

It should also explain how the AA may be affected when choosing this option?

65 is the NRA of the Scheme?

ray4221

The scheme guide just says a stepped pension will increase your AA usage..."...and you should consider this prior to choosing this option..." Nothing else no worked examples.

65 is the NRA of the Scheme? Yes 66 state pension.

DRS1

I am probably missing something but don't you have an annual allowance of £60k?  You have used £3600 of that leaving £56400.  If you have been doing the same £3600 for the last few years then you would have more than enough unused annual allowance to cover the £112k.  So no annual allowance charge???

Of course maybe I am wrong to think there is any unused annual allowance from past years - you don't say when you had to stop work.

Marcon

DRS1 said:

I am probably missing something but don't you have an annual allowance of £60k?  You have used £3600 of that leaving £56400.  If you have been doing the same £3600 for the last few years then you would have more than enough unused annual allowance to cover the £112k.  So no annual allowance charge???

Of course maybe I am wrong to think there is any unused annual allowance from past years - you don't say when you had to stop work.

You're missing the fact that OP has no earned income in the current tax year, so can't use carry forward:

 ray4221 said:

I have no other income and unable to make pension contributions that would allow tax relief (other than the 2.88/3.6k which I have done).

DRS1

But it is not a personal contribution is it?  So his income doesn't come into it?  I am completely ignorant on this but I assumed it would be a pension input amount.

ray4221

DRS1 said:

But it is not a personal contribution is it?  So his income doesn't come into it?  I am completely ignorant on this but I assumed it would be a pension input amount.

This is the crux of the matter -  if 60k-(the 3.36k) can be carried forward from previous years then no problem but as there is no income can anything be carried forward?

The odd thing is that HMRC would be charging 25% tax on relief that was assumed to be given but not actually given in reality.

ray4221

Silvertabby said:

How much will your stepped pension be after NRA/SPA?  

£3500 per year

xylophone

The scheme guide just says a stepped pension will increase your AA usage..."...and you should consider this prior to choosing this option...

Have you tried googling BAE Systems Triggering the Annual Allowance?

xylophone

Have you obtained a state pension forecast? What exactly does it show?

https://www.gov.uk/check-state-pension