The Plan is registered with HMRC under Section 153 of the Finance Act 2004. Under current legislation, this gives members and the Company certain important tax exemptions and ensures that investment income is largely tax-free. As a member of the Plan and any other pension schemes, you are responsible for the tax consequences of your membership. You should therefore note the following:
If you have Enhanced Protection, Primary Protection or have Fixed Protection, you should bring this to the attention of the Pensions Team in Edinburgh and seek specialist advice before joining or continuing in the Plan.
Your total pension benefits from all sources are subject to a Lifetime Allowance tax threshold. The Lifetime Allowance for the following tax years is:
2017/18 £1,000,000 (equivalent to a pension of about £50,000 pa)
If the value of your benefits exceeds the Lifetime Allowance they will be subject to additional tax. Before we pay retirement benefits from the Plan, you will need to provide details of how much of the Lifetime Allowance you have already used up within other pension arrangements.Benefits over the Lifetime Allowance can be taken as a cash sum subject to tax at 55% or as additional pension which will be taxed at 25% plus your normal marginal income tax rate.
If the value of your pension benefits is close to (or above) the Lifetime Allowance, the amount of the tax-free cash you can take at retirement may be restricted.Different rules apply if you have Enhanced Protection, Primary Protection or Fixed Protection.Other events can also have an impact e.g. a Pension Sharing Order following divorce or a period of time working overseas. Please tell the Pensions Team in Edinburgh if you believe special circumstances may apply to you.
There are no restrictions on the number of pension arrangements that you can be a member of at any one time. For example, if you wish, you can contribute to a personal pension (including a stakeholder pension) at the same time as paying contributions to the Plan. You may generally obtain tax relief on pension contributions (to all schemes) up to the greater of 100% of your earnings or £3,600. However, each year, the pension benefits you earn in all pension schemes are subject to an Annual Allowance tax threshold. Following the Finance Act 2011, the Annual Allowance reduced to £50,000 from 2011/2012 and reduced again to £40,000 from 2014/2015.
The pension benefits you earn in the Plan are measured over the year to 31 December (called the ‘Pension Input Period’). If, in one year, the total of the value of the pension benefits you earn in the Plan, plus any contributions you pay to another pension scheme, exceed the Annual Allowance, you will generally be subject to an Annual Allowance tax charge. It is possible to carry forward any unused Annual Allowance from the previous 3 years. Exemptions to the Annual Allowance tax charge also exist such as in the event of serious ill-health retirement. Pensionable Pay is capped at £160,000 from 1 January 2014 (previously capped at £200,000 from 1 April 2011) to mitigate the likelihood of an Annual Allowance tax charge becoming payable in respect of your Plan benefits. However, if you are paying into another pension arrangement as well as the Plan then you may still incur additional tax charges. If your annual pay is over £160,000 a cash supplement calculated as a percentage of any Pensionable Pay you earn in excess of £160,000 may be payable at the discretion of the Company.
Since 6 April 2006, only certain benefits are “authorised” by the Finance Act 2004. If unauthorised benefits are paid by a pension scheme, both the scheme and the recipient will be liable for additional tax. It is generally expected that the benefits payable by the Plan will be authorised, but in rare cases some benefits may be classed as unauthorised. In such cases, the Trustee is not required to pay the benefit. There may be adverse tax consequences if you invest (or it could be construed that you had invested) part or your entire tax-free cash sum from a pension scheme, into another pension scheme. This is often called ‘recycling’ tax-free cash sums. If you are concerned about this issue you should seek professional independent financial advice.
You may be permitted to elect, when your pension starts, for any lump sum death benefit (for example, any guaranteed benefit payable on death in retirement) to be treated as a pension protection lump sum death benefit. This would be taxed at 35%. If you have significant pension benefits this could be beneficial. If you are interested in exploring this, please contact the annuity service provider at the time you retire.