1. Pension Tax Relief Limits Implications to Higher Earners USS
Pension Services
Pension Tax Relief Limits
Implications to Higher Earners
USS
December 2012

2. Austin Chapel Independent Financial Advisers
Pension Services
Today’s Presenters
Fenella Needham
UCL Pensions Manager
Gary O’Neill
Austin Chapel Independent Financial Advisers

3. Agenda Pension Services Introduction & Background
Legislation & Scheme Rules update
Annual Allowance (AA) – how calculated
The impact of a large salary increase & Mechanisms / actions to consider to remove or reduce a tax charge
Carry forward
USS Tax Relief options
Your responsibilities
USS’ responsibilities
How a tax charge can be paid
Will you need financial Advice
Further guidance & outcomes of today
Questions & Answers

4. Introduction & Background
Pension Services
Introduction & Background
Recap of UCL activities: Presentations, communications
Dedicated area on website – UCL & USS
Why you’ve been invited today
Awareness of evolving legislation and scheme rules’ changes
Objective and outcomes of today’s presentation

5. Legislation & Scheme rules update
Pension Services
Legislation & Scheme rules update
Finance Act 2006 – A Day, 6th April 2006, Introduction of Annual Allowance (AA) and Lifetime Allowance (LTA)
Finance Act AA reduced to £50k (was £255k) from 6th April LTA reduced to £1.5m (was £1.8m) from 6th April 2012
USS rules changed – 3 Tax Relief Options introduced to help manage the impact of an AA/LTA tax charge
HM Treasury 2012 Autumn Statement – are the rumours true? Slides represent position at 12.29pm today!

6. Annual Allowance (AA) – how calculated
Pension Services
Annual Allowance (AA) – how calculated
The AA measures the increase in the value of a member’s benefits over the course of a 12 month period know as the Pension Input Period (PIP). For the purposes of calculating the AA, the USS PIP is from 1 April to 31 March and is the value of accrual using pensionable service and pensionable salary over the course of a PIP which is measured against the AA using a set formula. Figures produced by USS are calculated as follows:
USS benefits only – excludes any benefits from another non-USS pension arrangement
Monthly Added Year AVC contract – service counted in full during each PIP
Money Purchase AVCs (Prudential) – contributions paid during the PIP

7. Annual Allowance – where to start
Pension Services
Annual Allowance – where to start
USS website – Tax Relief Limits
USS Online modeller
Watch the video – Tax Overview of USS options
Factsheets – Tax Relief Limits
FAQs etc
Options for mitigating a tax charge
See handout
Request for accurate calculations to UCL Pension Services:

8. The impact of a large salary increase
Pension Services
The impact of a large salary increase
Large salary increase during the PIP year at same employer or as a result of moving between 2 USS employers
Increases in pensionable salary result in a direct increase to the AA value, as its based on all your service in USS at that point.
Member would not normally exceed the AA limit and incur a charge
All is not lost – various mechanisms/options to consider
Carry forward mechanisms
Review level of Money Purchase AVCs
Election for one of the 3 USS tax relief options
Pay the charge

9. The influence of the USS Pensionable Salary
Pension Services
The influence of the USS Pensionable Salary
Definition per the scheme rules
This is your highest average salary worked out to a formula designed to get the best possible calculation – “smoothing out” any adverse ups and downs in your salary over the years, and making adjustments for price inflation. Example: Your salary is determined for each period of 12 months of USS membership, over a maximum of 13 years previous to the date on which pensionable salary is to be calculated, each salary is revalued, except for the last 12 months, using the Retail Prices Index (RPI - The official “cost of living” index in the UK based on a monthly survey of the prices of a basket of goods and services) measure of inflation. Your Pensionable Salary is whatever comes out best – either the highest revalued annual salary during the last 3 years or your highest revalued salary averaged across any 3 consecutive “best years” over the last 13 years.

10. Application of a back-dated Pay Award
Pension Services
Application of a back-dated Pay Award
Back-dated pay awards effective in a prior PIP tax year
When a backdated salary award is paid to a member, it is taken into consideration for annual allowance purposes only in the year in which USS is notified of the award, ie the year it is awarded
For the PIP prior to the one in which the award is notified, the opening and closing values are calculated based upon the original, lower salaries which were in place prior to the backdated award.
For the calculation of the opening value of the PIP in which the award is notified to USS it is similarly ignored.  However for the calculation of the closing value, the backdated salary award is considered in full - ie the new, higher salary is treated as if it had been in place since the date it was backdated to.

11. Carry Forward Pension Services
HMRC mechanism - A member can carry forward any un-used AA in the previous 3 years and use to off-set in the current year
If an individual has an AA value of more than the current AA limit of £50K, 2011/2012 onwards, there may still NOT be a charge payable
This may be the solution for many members who have unused previous years’ allowances to reduce or remove a charge
HMRC web – Annual Allowance guidance

12. USS Money Purchase AVCs (Prudential)
Pension Services
USS Money Purchase AVCs (Prudential)
Contributions paid in a PIP year from April to March
Warning! The amount shown on Prudential Annual Statement, although shows 31/03/XX, its actually March to February!
Warning! Extracting figure from payslip YTD amounts
Paying large amounts or paid lump sum in March
Consider reducing/suspending for the remainder of the PIP year
Review position at start of new PIP year
Contact Prudential directly

13. Tax Relief Options Pension Services
USS rules changed – introduction of 3 options to help manage the impact of an AA/LTA charge
Elections only permitted for those using it to remove/reduce a charge
USS Factsheet, addendum to Tax Limits Factsheet
Forms – send all Election Forms to UCL Pension Services

14. USS options to mitigate tax charges
Temporary cessation
FS members only
Max 6 months
Retain life & incapacity benefits
Auto rejoin on following 6th April
Rejoin FS scheme
Salary cap
Elect for deferred benefits
Future service FS but with salary cap
Enhanced opting out
FS members only
Retain life & incapacity benefits
Cannot rejoin FS
Must rejoin CARE
Fixed Protection election

15. Members’ responsibilities
Pension Services
Members’ responsibilities
Personal taxation matter
Responsibility of the employee to manage their own allowances and tax position
Provide the required notification to HMRC of a potential charge
Completion and submission of any HMRC Self Assessment Tax Return (SATR)
UCL provide you information, where to find out what you need to know
Declare & Pay any AA charge
When you receive your Pension Savings Statement – check it!

16. USS’ Responsibilities
Pension Services
USS’ Responsibilities
Statutory Deadline 6 October 2013
Calculations run across the USS membership
Full pensionable service & salary history
USS will provide a Pension Savings Statement for those whose AA value in the current year exceeds the AA limit
For those cases, automatically produce 3 prior PIP years
Using Carry Forward and other mechanisms may result in there being no tax charge payable

17. How a Tax Charge can be paid
Pension Services
How a Tax Charge can be paid
Self Assessment Tax Return (SATR)
Values produced by USS modeller accepted by HMRC
Under £2K will be expected to be paid immediately
HMRC website – Information, deadlines etc
Wait for HMRC to send you the invoice/bill to pay the charge
Scheme Pays
USS website – Information, rates etc
If charge £2K+ and is applicable to USS benefits
Permanent reduction to benefits, and increases year by year to retirement
Inform HMRC of this option

18. Paying an AA Tax charge (AAC)
Date
Your action
Scheme action
Apr - Oct
You may request an AA calculation
Auto provide you with AA calculation + 3 years, if > AA
Oct - Jan
Ask scheme of impact of reduction in benefits if you ask them to pay AAC
Decide whether to pay immediately the AAC or ask scheme to
Provide you with impact scenario(s)
Jan
Send HMRC your SATR with option – Pay AAC
Jan - Jul
Inform scheme you want them to pay AAC charge – make irrevocable election confirming this
Process irrevocable election
Dec
Report to HMRC AAC to be paid – Pay AAC to HMRC
Jan +
HMRC undertake compliance checks to match elections to payments – If no AAC paid then AAC reverts to you with demand for late payment
So, if you do exceed the AA and have no unused allowance from the previous three PIP years, how do you pay the tax?
Firstly, how will you know you’ve exceeded the AA in any given PIP? - Legislation will be enacted which will require pension schemes to provide this information to you, on request, within 3 months of your request, or if later, 6th October following the proceeding PIP
If you’ve exceeded the AA, they will also be required to provide the AA calculation for the previous 3 PIP or years, to enable you to identify any unused allowances. You will be required to then submit ant AAC on a SATR – the onus is on you to find out and for you to inform the taxman
Now we still await the consultation outcome on the detail of paying the AAC. But the proposals by HMRC are as set out in the final bullet point
There are some problems timescale wise with the deadlines for scheme proving information to you and you submitting your SATR; hard copy SATR need to be submitted by 31/10 but online SATR have a longer deadline of 31 January. But you’ll need to inform HMRC on your SATR, whether you want to:
Pay the whole of the AAC immedialtely or the de minimus level only or
Have the pension scheme pay any excess over the de minimus level immediately on your behalf or
Have the pension scheme roll up the total of all of your AAC during membership and pay these to HMRC, with interest, at a BCE
You’ll need to understand the impact on your pension benefits, as they will have to be reduced, if the pension scheme pays a tax on your behalf, from pension benefits which may not come into payment for years time, before submitting your SATR. If you don’t find out what your AA is each PIP and therefore don’t inform HMRC, this could be classed as deliberate avoidance of tax by HMRC 18

19. Life Time Allowance (LTA)
Pension Services
Life Time Allowance (LTA)
Reduced to £1.5M from £1.8M with effect from 6 April 2012
A limit on the total value of all pension benefits before any tax charge, value determined on a Benefit Crystallisation Event (BCE)
Any excess over the LTA is subject to a tax recovery charge of 55% if taken as a lump sum, 25% (in addition to the ordinary marginal income tax rate) if taken as pension
Some transitional Protection available – Primary (PP), Enhanced (EP) and Fixed (FP) - no longer able to apply for these

20. Life Time Allowance – calculation
Pension Services
Life Time Allowance – calculation
On a BCE, LTA equals total of :
1. USS Pension pa x 20
2. USS cash
3. Any pre-2006 pension pa already in payment x 20
4. Any lump sum received from a previous BCE
5. Fund value of any Defined Contribution (DB) schemes (personal/group pensions)
6. Fund value of any AVC, FSAVC or other registered pension plans

21. Life Time Allowance – things to consider
Pension Services
Life Time Allowance – things to consider
If you have any transitional protection, make sure you know the level of your protection and what actions are permitted to ensure cover is not lost
USS website – Tax Relief Limits
Review levels of Money Purchase AVCs & non-USS benefits
Check the Pension Savings Statement issued by USS
Impact of a salary increase
If considering one of the USS tax relief limit options, know the effect on the amount of pension at retirement
Review retirement plans – when & how
Seek Financial Advice!

22. Will I need Financial Advice?
Pension Services
Will I need Financial Advice?
Why do I need to seek Independent Financial Advice?
Where do I find out details of Independent Financial Advisors (IFAs)?

23. Independent Financial Advice – Why
Pension Services
Independent Financial Advice – Why
UCL Pension Services & USS can:
provide information about the scheme and your benefits
clarify technical issues/queries
direct you to where guidance / information is located
to enable you to make an informed decision about the options available / choices facing you
but CAN NOT give financial advice
Complex matters, difficult decisions to make, its natural you will want help in making a decision which is best for you
You should seek advice as your net benefits, even after a potential tax charge, may be greater than the net cost of the contribution paid by you.
Identify / discuss your retirement objectives

24. Independent Financial Advice – Where
Pension Services
Independent Financial Advice – Where
USS worked closely with the Personal Finance Society (PFS)
List of IFAs on web
Unbiased.co.uk – Use their search service, tick your requirements and receive details of advisers close to your home or office
Alternative arrangements for the provision of advice may be provided your employer (as set out on USS web)
Help from other organisations
BMA
Money Advice Service “Do you need a Financial Advisor?”

25. Things to consider – Financial advice
Over 16 years experience of advising Higher Education professionals.
Provide a ‘financial advice in the workplace programme’ for Queen Mary, University of London and The University of Northampton
Pre and post retirement advice for individuals in order to maximise pension benefits and mitigate taxation.
Investment advice and management service which includes a review of existing investments held and also recommendation of suitable future investments.
Individual meetings can be held at the work place or at your home.
Austin-Chapel
Independent Financial Advisers LLP 25

26. Further Information Pension Services
UCL Pension Services website:
Tax Relief Limits, Guidance Note, Contacts details
USS website:
Tax Relief Limits
Austin Chapel Independent Financial Advisors – Gary O’Neill
Mobile:
Prudential Retirement Education Consultant
Austin Brydon
.co.uk Mobile:

27. Outcomes of today’s presentation
Pension Services
Outcomes of today’s presentation
Good or better understanding of the AA/LTA
How calculated & what factors influence the calculations
Aware of your responsibilities & timescales
Know where to locate information, who you should ask
Know why you may need to seek independent advice
What will be the 1st action you take after leaving this room?
HM Treasury Autumn Statement – what’s changed!!!!

28. Pension Services
QUESTIONS?????