Pensions query

[brickwall]

The initial message was deleted from this topic on 05 August 2024 at 16:11

[The Leaper]

Regarding the tax on refund point, before payment of the refund to you the plan administrators are obliged to apply the tax charge of a straightforward 20% (assuming the refund is below £10,800) so you will receive 80% net. There is no facility for any reclaim of this tax by you. As this is the standard procedure the question of the year the contributions have been paid and the relevant tax rate is not an issue to consider. The administrators are responsible for accounting for the tax to HMRC. So, simplicity itself!

R.

[The Leaper]

20% on the amount up to £10800, 40% on the rest over £10800.

R.

[The Leaper]

No, you had full tax relief on the contributions that you paid in so you probably made something on the overall tax situation.

R

[The Leaper]

...and you only get a refund of your own contributions.

R.

[The Leaper]

So, based on you own figures above (total of £20,000, you paid 8%, employer paid 22%), you have paid in around £7200 and got full tax relief and you'll get back about £5800 net. Not a bad return on your investment for 2 years if you work it all out.

R.

[The Leaper]

And what public sector scheme was it? Most are unfunded so where did you get the 22% figure from?

R.

[coetzeeh]

22% employer contribution - holy moly!

[sidicks]

The Leaper said:

And what public sector scheme was it? Most are unfunded so where did you get the 22% figure from?

R.

Notional employer contribution (real world required contribution is much higher!!)

[Claudia Skies]

"Return of contributions" usually means "return of your contributions" in the private sector schemes that I have seen.

[The Leaper]

I disagree. You had the option to join and you should have read all about the CSPS which includes the situation for short service. You've made a bundle too on a short term investment if you care to work it out allowing for the full tax relief on your own contributions and the amount refunded net of tax at a favourable rate. As a tax payer, why should I pay for you to get what you expected rather than what you are actually entitled to? Unfortunately, too often people have assumed expectations rather than considered actual rights. You also took the decision to leave employer B and bring into play the short service provisions.

Sorry to sound harsh but that's the way things are.

I do agree, though, that prohibiting you from taking a transfer value equal to the capital value of your accrued benefits is not really fair.

R.

[The Leaper]

The rules of the specific pension scheme may be "silly" regarding the availability of a transfer. The situation regarding a refund comprised of your own contributions is enshrined in pensions law going back a long time.

Maybe the new legislation about the availability of pension assets coming into force next month will help people in your situation; no good to you though, I think.

R.

[Zigster]

brickwall said:

Employer B will only transfer my entitlement to another career average scheme. Given that I don't have access to such a scheme, I get a refund of contributions.

Can employer B's pension scheme impose such a restriction? You have a statutory right to a transfer value - as long as it is an approved pension arrangement, I can't see why pension scheme B can specify what sort of pension scheme it goes to.

[The Leaper]

Not right.

The statutory right to a transfer is acquired after 2 or more years of participation in a pension scheme. The OP states he has less than 2 years so he has no statutory right. Maybe he could ask if his own contributions could be transferred and see what CSPS says.

R.

[Claudia Skies]

The Leaper said:

Maybe he could ask if his own contributions could be transferred and see what CSPS says.

How does that differ from refund of contributions from one scheme followed by re-investment into a new employer's scheme or alternatively some sort of private pension? I can't see a difference myself.

The first employer may refuse such a transfer because of the administration involved and/or setting a precedent.

[The Leaper]

The gross refund will be subject to tax before receipt, whereas the aggregated contributions could be transferred gross without a tax deduction.

R.

[The Leaper]

The gross refund will be subject to tax before receipt, whereas the aggregated contributions could be transferred gross without a tax deduction.

R.

[Claudia Skies]

The Leaper said:

The gross refund will be subject to tax before receipt, whereas the aggregated contributions could be transferred gross without a tax deduction.

But when they are reinvested into another pension scheme OP will get the tax relief back again.

Hence I can't see any difference. Same outcome either way.

[Zigster]

The Leaper said:

Not right.

The statutory right to a transfer is acquired after 2 or more years of participation in a pension scheme. The OP states he has less than 2 years so he has no statutory right. Maybe he could ask if his own contributions could be transferred and see what CSPS says.

R.

I thought there were slightly different in theory but the same in practice rights for those with less than two years' service: Cash Transfer Sums rather than CETVs?

[The Leaper]

If the OP takes a refund and then pays them into another pension scheme he will get tax relief on those contributions paid to the new scheme. The point is that the refund is not gross, it's net of tax deducted before receipt so the contributions repaid will be lower than the gross paid to the first scheme.

R.