Public sector workers face higher tax bills due to pension tax changes
17 Jan 2015
Reductions in pensions taxation limits from April this year mean that public servants retiring after 5 April or receiving a promotion could breach the Lifetime or Annual Allowance for tax efficient pensions savings for the first time.
From 6 April 2014, the Lifetime Allowance (LTA), which is the maximum amount of pension savings that benefits from tax relief over a person’s lifetime, will reduce from £1.5m to £1.25m. The limit on the tax efficient pensions savings that can be made in any one year, the Annual Allowance, will also reduce from £50,000 to £40,000.
Senior NHS and Local government workers, Head Teachers and Civil Servants earning over £100,000 a year with 20 years’ service may breach the new annual allowance when it reduces in April. Even those earning just £40,000 a year could breach the annual allowance if he or she has over 20 years’ service and receives a significant promotion.
In the police, a Sergeant being promoted to Inspector could breach the annual allowance as a result of their promotion.
NHS and Local Government workers, Head Teachers and Civil Servants earning from £100,000 who retire after a full career in public service from April 2014 may breach the lifetime allowance for the first time when it reduces from £1.5m to £1.25m.
In the police, Assistant Chief Constables are likely to breach the Lifetime Allowance for the first time if they retire after April.
MyCSP is advising public servants to discuss the changes with their employers to understand how they might be affected, the options available to them and the action they need to take. Senior public servants should consider when they plan to retire, the amount of cash they plan to take, how their pay might increase in future, further pensions savings from other employers, dependents’ benefits and options for flexible working. Crucially, members need to consider whether to apply for fixed protection to protect the current lifetime allowance of £1.5m before 5 April.
To help employers communicate the changes, MyCSP has launched a new service that helps explain to senior staff the impact of the changes. The service incorporates seminars, projections for individuals showing the potential impact of the changes in various scenarios and one to one sessions with senior staff.
Virginia Burke, business development director, MyCSP; “It is important that scheme members are aware of the upcoming changes in order to make informed choices about their options and ensure the correct HMRC reporting procedures are followed.”
31 January 2014
- Deadline to complete a self assessment for those who have a tax charge to pay for 2011/2012 or 2012/2013 pension accrual, or face interest payments
5 April 2014
- Employees must apply for fixed protection 2014*
6 April 2014
- Annual Allowance reduces from £50000 to £40000. Lifetime Allowance reduces from £1.5m to £1.25m.
- Individual protection becomes available and members retiring will be subject to the lower Lifetime Allowance
July – October 2014
- Pension Savings Statements issued in respect of 2013.14 tax year
* If members are affected by the lifetime allowance they can apply for Fixed Protection 2014 to retain the current Lifetime Allowance of £1.5m or Individual Protection after 5 April 2014. Fixed protection would require accrual of all future pension benefits to cease at 5 April 2014 therefore it is important members register before this date. If pensions growth has exceeded the annual allowance charge in 2011/12 or 2012/13 and a tax charge is payable, a self assessment return completed by 31 January.Back to news