LGPS: Transfer problem

Hanoi1980

I have been a member of a local government pension scheme since 2003 and have continuous service since then paying into the same scheme. 

In 2023 I moved to another part of the country and chose to have my pension transfer over to the new area's LGPS so I could continue to be a member and maintain my benefits.

This year I discovered that money was missing and had not been added to my pension. It was located in the receiving authorities accounts and added to my pension. 

I've just been sent a letter to say I am over my pension input amount, even with the three previous years to the tune of about 40k which means I owe a huge amount in tax for my pension I accrued over the last twenty years.

I feel incredibly let down. If they had told me about the tax risk I would never have done this, and I don't understand how a decision to merge the post in 2023 means I am paying tax in 2025. 

I think this is wrong, but I am very upset and a bit of a loss. I had a chat with the scheme and they are looking into it, but given the journey so far I have very little confidence. 

Is there any advice or views. Have they got this wrong, and if not, do  I have any claim against them given they did not advise of the tax implications for continuous service. This is going to cost me thousands of pounds.

Marcon

Hanoi1980 said:

I have been a member of a local government pension scheme since 2003 and have continuous service since then paying into the same scheme. 

In 2023 I moved to another part of the country and chose to have my pension transfer over to the new area's LGPS so I could continue to be a member and maintain my benefits.

This year I discovered that money was missing and had not been added to my pension. It was located in the receiving authorities accounts and added to my pension. 

I've just been sent a letter to say I am over my pension input amount, even with the three previous years to the tune of about 40k which means I owe a huge amount in tax for my pension I accrued over the last twenty years.

I feel incredibly let down. If they had told me about the tax risk I would never have done this, and I don't understand how a decision to merge the post in 2023 means I am paying tax in 2025. 

I think this is wrong, but I am very upset and a bit of a loss. I had a chat with the scheme and they are looking into it, but given the journey so far I have very little confidence. 

Is there any advice or views. Have they got this wrong, and if not, do  I have any claim against them given they did not advise of the tax implications for continuous service. This is going to cost me thousands of pounds.

Schemes never accept responsibility for giving 'personalised' tax advice - at most they will give generic warnings/information.  The relevant information is on the LGPS website: https://www.lgpsmember.org/your-pension/the-essentials/tax/#the-annual-allowance

QrizB

Hanoi1980 said:

I have been a member of a local government pension scheme since 2003 and have continuous service since then paying into the same scheme. 
In 2023 I moved to another part of the country and chose to have my pension transfer over to the new area's LGPS so I could continue to be a member and maintain my benefits.
This year I discovered that money was missing and had not been added to my pension. It was located in the receiving authorities accounts and added to my pension. 
I've just been sent a letter to say I am over my pension input amount, even with the three previous years to the tune of about 40k which means I owe a huge amount in tax for my pension I accrued over the last twenty years.

I'm no LGPS expert (that would be @Silvertabby ) but there should never have been a cash credit to your new LGPS pension, and no PIA. It should have been a transfer of existing entitlements.

Someone, somewhere has messed things up monumentally, to your detriment.

Have you opened a complaint with your LGPS?

Marcon

QrizB said:

Hanoi1980 said:

I have been a member of a local government pension scheme since 2003 and have continuous service since then paying into the same scheme. 
In 2023 I moved to another part of the country and chose to have my pension transfer over to the new area's LGPS so I could continue to be a member and maintain my benefits.
This year I discovered that money was missing and had not been added to my pension. It was located in the receiving authorities accounts and added to my pension. 
I've just been sent a letter to say I am over my pension input amount, even with the three previous years to the tune of about 40k which means I owe a huge amount in tax for my pension I accrued over the last twenty years.

I'm no LGPS expert (that would be @Silvertabby ) but there should never have been a cash credit to your new LGPS pension, and no PIA. It should have been a transfer of existing entitlements.

Someone, somewhere has messed things up monumentally, to your detriment.

Have you opened a complaint with your LGPS?

Taken from the link I gave in my post:

Who is affected by the annual allowance?

Most people aren’t affected by the annual allowance because their pension savings don’t increase by more than £60,000 in a year. You are most likely to be affected if one or more of these statements applies to you:

• You have final salary membership and you receive a significant pay increase. Membership built up before 1 April 2014 is final salary membership. You could also have final salary membership that you transferred from another public service pension scheme.
• You combine a previous LGPS pension benefit that was built up in the final salary section of the LGPS and your salary is higher than it was when you left the Scheme.

OP - have you looked at the benefits you are projected to receive now the two periods of membership are combined?

Hanoi1980

QrizB said:

Hanoi1980 said:

I have been a member of a local government pension scheme since 2003 and have continuous service since then paying into the same scheme. 
In 2023 I moved to another part of the country and chose to have my pension transfer over to the new area's LGPS so I could continue to be a member and maintain my benefits.
This year I discovered that money was missing and had not been added to my pension. It was located in the receiving authorities accounts and added to my pension. 
I've just been sent a letter to say I am over my pension input amount, even with the three previous years to the tune of about 40k which means I owe a huge amount in tax for my pension I accrued over the last twenty years.

I'm no LGPS expert (that would be @Silvertabby ) but there should never have been a cash credit to your new LGPS pension, and no PIA. It should have been a transfer of existing entitlements.

Someone, somewhere has messed things up monumentally, to your detriment.

Have you opened a complaint with your LGPS?

Thank you for taking time to reply, I've opened a query. I think I need to raise a complaint using your language of cash credit. This is really helpful. I will raise a complaint now 

Hanoi1980

Marcon said:

Hanoi1980 said:

I have been a member of a local government pension scheme since 2003 and have continuous service since then paying into the same scheme. 

In 2023 I moved to another part of the country and chose to have my pension transfer over to the new area's LGPS so I could continue to be a member and maintain my benefits.

This year I discovered that money was missing and had not been added to my pension. It was located in the receiving authorities accounts and added to my pension. 

I've just been sent a letter to say I am over my pension input amount, even with the three previous years to the tune of about 40k which means I owe a huge amount in tax for my pension I accrued over the last twenty years.

I feel incredibly let down. If they had told me about the tax risk I would never have done this, and I don't understand how a decision to merge the post in 2023 means I am paying tax in 2025. 

I think this is wrong, but I am very upset and a bit of a loss. I had a chat with the scheme and they are looking into it, but given the journey so far I have very little confidence. 

Is there any advice or views. Have they got this wrong, and if not, do  I have any claim against them given they did not advise of the tax implications for continuous service. This is going to cost me thousands of pounds.

Schemes never accept responsibility for giving 'personalised' tax advice - at most they will give generic warnings/information.  The relevant information is on the LGPS website: 

Thank you for taking the time to reply. I was not expecting personalised advice in the correspondence, but I would expect a generic warning of a potential tax risk of a course of action. I've reviewed the letter, this is not explained. But based on QrizB this is probably moot because it should never have been in scope as it was not a cash credit.

My complaint then is now not that the advice was missing, but that they have made a more fundamental mistake,

Silvertabby

Is your new salary much higher than your old?  That could do it, (by increasing the value of your pre 2014/FS benefits) even though the transfer isn't cash based.  That said, even if it is, then the any 'increase' caused by two+ years of previous benefits being transferred in late isn't your problem and you shouldn't be penalised for it.

You need a clear explanation of exactly what has happened from your current LGPS.

If it does turn out to be correct, which it could well be if you have taken a decent pay rise, you should be able to ask your LGPS to pay the tax bill for you, then recover it from your eventual LGPS benefits.  Yes, in an ideal world, the tax implications would have been spelled out for you, but LGPS administrators are not qualified to give individual tax advice.  But they should at least have pointed you to Marcon's link (or their own equivalent).  

Marcon

Hanoi1980 said:

Marcon said:

Hanoi1980 said:

I have been a member of a local government pension scheme since 2003 and have continuous service since then paying into the same scheme. 

In 2023 I moved to another part of the country and chose to have my pension transfer over to the new area's LGPS so I could continue to be a member and maintain my benefits.

This year I discovered that money was missing and had not been added to my pension. It was located in the receiving authorities accounts and added to my pension. 

I've just been sent a letter to say I am over my pension input amount, even with the three previous years to the tune of about 40k which means I owe a huge amount in tax for my pension I accrued over the last twenty years.

I feel incredibly let down. If they had told me about the tax risk I would never have done this, and I don't understand how a decision to merge the post in 2023 means I am paying tax in 2025. 

I think this is wrong, but I am very upset and a bit of a loss. I had a chat with the scheme and they are looking into it, but given the journey so far I have very little confidence. 

Is there any advice or views. Have they got this wrong, and if not, do  I have any claim against them given they did not advise of the tax implications for continuous service. This is going to cost me thousands of pounds.

Schemes never accept responsibility for giving 'personalised' tax advice - at most they will give generic warnings/information.  The relevant information is on the LGPS website: 

Thank you for taking the time to reply. I was not expecting personalised advice in the correspondence, but I would expect a generic warning of a potential tax risk of a course of action. I've reviewed the letter, this is not explained. But based on QrizB this is probably moot because it should never have been in scope as it was not a cash credit.

My complaint then is now not that the advice was missing, but that they have made a more fundamental mistake,

QuizB's answer is wrong, as the extract from the website I've quoted demonstrates.

You would only have grounds for complaint if the delay in acting on your instructions gave rise to a higher tax charge than would have been the case had things happened in a timely fashion.

Marcon

OP - for defined benefit schemes, the pension input amount is the value of benefits accrued over the pension input period. That's not the same thing as a 'cash credit' - a concept which usually applies to defined contribution schemes, and the LGPS is a defined benefit scheme.

Going back to the question I asked above, have you looked at what your benefits are projected to be now that you have linked the periods of service? I understand the reaction to an unforeseen tax charge ('ouch - I need someone to blame!'), but the decision and responsibility were yours. Did you check that combining the periods of service could be expected to  give a better final result in the long term, which could be the case even with this unwelcome hiccup? If so, that might go quite a long way to making you feel rather better about it than you do now.

QrizB

If the problem is a high PIA due to an increased salary in your current role, rather than one of cash being credited from the LA's account, the delay might even have worked in your favour due to the Annual Allowance increasing from £40k to £60k in 23/24.

I agree that you need a full explanation of what's happened from your current LGPS.

Hanoi1980

Thank you all for the comments. Just how worried I have been about an unexpected, and frighteningly large tax bill and some wider financial change in my life, has definitely made this harder to think about and process.

I have had a big change in my salary alongside the move to a new area as @Marcon and @Silvertabby have suggested. Now I have got over the initial shock and worry of the letter, and can read the links a second time I can see that this may be what has happened. The pension scheme losing 20 years of my contributions for a little while, didn't really build confidence and could be unrelated and is confusing the issue. 

The net position of combining my pensions is better with the final salary pension because of my much improved job. If that accrues some tax costs now that can be paid over time then that's OK because my net position is better. Thank you @Marcon your measured response was just what I needed to hear. I was so worried because I thought I had significantly lost out, but I don't think that would be the case as a whole.

@QrizB I have gone back to the LGPS and explained myself better, explained why this was such a worry, and they are looking into this and will come back within 5 working days. I think I will ask them to review their letter if it's needed. 

In general, thank you all so much for your replies. This has been a really worrying experience, I do have a good job, but the tax bill this morning looked absolutely ruinous for a house move and wider financial changes for me in my life. I feel much better about things now; it's either a mistake and I know how to articulate this, or it's correct but manageable and still OK for my retirement overall. I appreciate your time and thoughts.