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  • FIRST POST
    • Eric Crassus
    • By Eric Crassus 11th Apr 19, 2:40 PM
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    Eric Crassus
    NHS Scotland scheme: lump sum to purchase additional pension
    • #1
    • 11th Apr 19, 2:40 PM
    NHS Scotland scheme: lump sum to purchase additional pension 11th Apr 19 at 2:40 PM
    We are looking at using a lump sum to purchase additional pension in my wife's NHS Scotland pension scheme. Is anyone able to help with these couple of points please? I assume that the normal restriction limiting the size of a pension contribution to the earnings of the year in which it is paid must apply. Is that right? (LTA or MPAA are not issues?) Do you know whether the payment is made net and tax relief dealt with by the scheme administrator or is the payment made gross? (Higher rate tax is not relevant here). Thanks.
Page 1
    • xylophone
    • By xylophone 11th Apr 19, 5:51 PM
    • 29,232 Posts
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    xylophone
    • #2
    • 11th Apr 19, 5:51 PM
    • #2
    • 11th Apr 19, 5:51 PM
    https://forums.moneysavingexpert.com/showthread.php?t=4043989

    https://www.nhsbsa.nhs.uk/sites/default/files/2018-11/Additional%20Pension%20factsheet-20181017-%28V6%29.pdf

    We cannot advise you about your personal tax position but members of a registered pension scheme, like the NHS Pension Scheme, can normally contribute up to 100% of their salary and claim tax relief.
    When paying for AP by instalments tax relief is usually received through the PAYE system. If Additional Pension is purchased by a lump sum payment you will need to contact Her Majesty’s Revenue and Customs (HMRC) or complete a self assessment tax return to claim the tax back.
    • Dazed and confused
    • By Dazed and confused 11th Apr 19, 8:13 PM
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    Dazed and confused
    • #3
    • 11th Apr 19, 8:13 PM
    • #3
    • 11th Apr 19, 8:13 PM
    Do you fully understand how the tax relief works when you make a lump sum contribution?

    Some previous posters who have made lump sum payments have been spectacularly underwhelmed by the tax relief actually due.

    There can be very little tax relief due, if any, on a large lump sum payment and there are other consequences to consider as well.

    Your wife may lose her ability to use the savings nil rate of tax (aka Personal Savings Allowance).

    But this might free up the savings starter rate of tax (upto 5,000 taxed at 0%).

    Also, as couple you may well already be eligible for Marriage Allowance but the lump sum contribution may mean you, as a couple, may now be able to benefit from it.
    • Eric Crassus
    • By Eric Crassus 15th Apr 19, 12:55 PM
    • 3 Posts
    • 0 Thanks
    Eric Crassus
    • #4
    • 15th Apr 19, 12:55 PM
    • #4
    • 15th Apr 19, 12:55 PM
    Dazed and Confused,


    Thanks for the reply. That's helpful. I hadn't given any thought to getting basic rate relief via a tax return, as that seems such an unusual situation. I'm not sure that I do fully understand. If you (or anyone else) see this and are kind enough to reply, I'd be grateful for your comments.


    I assume for simplicity a cash lump sum payment equal to [gross salary less any routine pension contributions under normal net pay arrangements]. I take it that in the tax return the lump sum is offset against the earned income and brings it down to nil? Therefore savings income is covered by the personal allowance, and the personal savings allowance and starting rate for savings are not used, unless you have extraordinary high levels of savings income. Therefore you waste some personal allowance/starting rate for savings/personal savings allowance in comparison with the situation without the lump sum pension contribution, and the tax liability falls by less than you might expect. Is that the case?


    A similar pattern with slightly different numbers would apply if you paid (say) 80% of the lump sum. I had assume that if you paid that 80% lump sum into a SIPP, you would get full basic rate tax relief at source. Does that mean that (a) you actually get less tax relief by paying the lump sum to buy more NHS pension ie the mechanism does make a difference; (b) the relief at source for the SIPP is actually subject to some restrictions which are not normally discussed; or (c) I've got the wrong end of the stick (probable)? Thanks.
    • Dazed and confused
    • By Dazed and confused 15th Apr 19, 6:54 PM
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    Dazed and confused
    • #5
    • 15th Apr 19, 6:54 PM
    • #5
    • 15th Apr 19, 6:54 PM
    Your basic understanding is correct

    For example earn 15,000 taxable salary and contribute 8,000 to a "relief at source" scheme and it will make no difference to the tax payable on the salary (500 in the current tax year) but the pension company will add 2,000 to the pension fund.

    But make a lump sum contribution of 8,000 with no relief at source and the taxable income would be reduced to 7,000 so no tax is payable on the salary. A tax savings of 500.

    There may be some other benefits of the lump sum, ability to benefit from Marriage Allowance or less tax payable on savings interest for example but the crucial thing is there is no automatic 20% tax relief.

    Clearly if the salary is large enough and lump sum contribution small enough it may attract 20% relief but that is entirely dependent on the person's circumstances.

    Relief at source tax relief can be limited i.e paying in more than annual earnings but going off the threads on here most people seem to just pay contributions which are eligible for tax relief.

    There is one very important thing to remember though. Relief at source schemes tend to be defined contribution so the return is subject to investment decisions. The lump sum payment is more likely to be into a defined benefit scheme so there is a level of guaranteed income in return which some may see as more preferable to the defined contribution option.
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