Will receiving previous backdated LGPS pension impact on my current one (with AVCs)?

TerryBiscuits

Hi everyone,

After several years of discussions - and largely thanks to the wonderful Pension Ombudsman -  it appears that I'm going to receive my unreduced backdated LGPS pension from a previous job. I have since started a new LGPS pension with my current employer - I didn't combine because the dispute was ongoing.

In the last six months I have started buying AVCs alongside my current pension and I'm wondering what happens to those - and my new pension - when I start receiving the pension from my previous employment. Will I be able to carry on as before and keep paying into it (including the AVCs)? Will I have to take the AVCs? Or will I have to take my current pension and AVCs too? I'm not planning to retire for another five years, so I'd rather keep building up the pot with my current pension.

I hope this is clear and thanks in advance for any advice you can offer.

Silvertabby

No, as you haven't combined, you can take your earlier pension benefits and carry on paying (including AVCs) in respect of your current post.

Only point to note, if relevant, is that if your earlier pension is being paid on ill health grounds, and if you have to leave your current post due to ill health, you won't get a second bite of the ill health enhancement cherry.

Yorkie1

If the backlog of your earlier pension benefits is paid in a lump sum, then it may well take you into higher rate tax for this year.

You can ask them to set out how the arrears amount is apportioned per tax year and then recalculate the tax:

This is what I was advised on a previous thread of mine:

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim75020

"If a pension provider discovers a long-standing underpayment of pension, the underpayment is calculated and paid in a single sum. Where the provider is required to operate PAYE, they operate it on the lump sum arising which may give rise to higher rate liability for a pensioner who is usually a basic rate taxpayer. In this situation, the pensioner should contact HMRC at the end of the tax year in which the arrears were paid and supply a schedule showing the years to which underpayments are attributable (on the accrual basis), asking for the payments to be related back to the relevant years. HMRC will spread the payments back over the relevant years and recalculate liability. Underpayments in the earlier years may be set-off against the resulting overpayment in the year of the lump sum payment.

I was also suggested to get all the relevant information about income and tax liability for the relevant tax years before approaching HMRC.

TerryBiscuits

Silvertabby said:

No, as you haven't combined, you can take your earlier pension benefits and carry on paying (including AVCs) in respect of your current post.

Only point to note, if relevant, is that if your earlier pension is being paid on ill health grounds, and if you have to leave your current post due to ill health, you won't get a second bite of the ill health enhancement cherry.

That’s fantastic news. My pension is being paid due to redundancy so no ill health grounds complexities. Thanks so much for the prompt response. If only the LPPA could provide the same level of service! 

TerryBiscuits

Yorkie1 said:

If the backlog of your earlier pension benefits is paid in a lump sum, then it may well take you into higher rate tax for this year.

You can ask them to set out how the arrears amount is apportioned per tax year and then recalculate the tax:

This is what I was advised on a previous thread of mine:



"If a pension provider discovers a long-standing underpayment of pension, the underpayment is calculated and paid in a single sum. Where the provider is required to operate PAYE, they operate it on the lump sum arising which may give rise to higher rate liability for a pensioner who is usually a basic rate taxpayer. In this situation, the pensioner should contact HMRC at the end of the tax year in which the arrears were paid and supply a schedule showing the years to which underpayments are attributable (on the accrual basis), asking for the payments to be related back to the relevant years. HMRC will spread the payments back over the relevant years and recalculate liability. Underpayments in the earlier years may be set-off against the resulting overpayment in the year of the lump sum payment.

I was also suggested to get all the relevant information about income and tax liability for the relevant tax years before approaching HMRC.

This is really helpful. I did get some previous advice on this matter from an earlier post and this helps explain it in very straightforward terms. I will be sure to report back to let you know how it works out now I know what to do. Thanks!