3 Agenda Pension Services Introduction & Background Legislation & Scheme Rules updateAnnual Allowance (AA) – how calculatedThe impact of a large salary increase & Mechanisms / actions to consider to remove or reduce a tax chargeCarry forwardUSS Tax Relief optionsYour responsibilitiesUSS’ responsibilitiesHow a tax charge can be paidWill you need financial AdviceFurther guidance & outcomes of todayQuestions & Answers
4 Introduction & Background Pension ServicesIntroduction & BackgroundRecap of UCL activities: Presentations, communicationsDedicated area on website – UCL & USSWhy you’ve been invited todayAwareness of evolving legislation and scheme rules’ changesObjective and outcomes of today’s presentation
5 Legislation & Scheme rules update Pension ServicesLegislation & Scheme rules updateFinance 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 2012USS rules changed – 3 Tax Relief Options introduced to help manage the impact of an AA/LTA tax chargeHM Treasury 2012 Autumn Statement – are the rumours true? Slides represent position at 12.29pm today!
6 Annual Allowance (AA) – how calculated Pension ServicesAnnual Allowance (AA) – how calculatedThe 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 arrangementMonthly Added Year AVC contract – service counted in full during each PIPMoney Purchase AVCs (Prudential) – contributions paid during the PIP
7 Annual Allowance – where to start Pension ServicesAnnual Allowance – where to startUSS website – Tax Relief LimitsUSS Online modellerWatch the video – Tax Overview of USS optionsFactsheets – Tax Relief LimitsFAQs etcOptions for mitigating a tax chargeSee handoutRequest for accurate calculations to UCL Pension Services:
8 The impact of a large salary increase Pension ServicesThe impact of a large salary increaseLarge salary increase during the PIP year at same employer or as a result of moving between 2 USS employersIncreases 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 chargeAll is not lost – various mechanisms/options to considerCarry forward mechanismsReview level of Money Purchase AVCsElection for one of the 3 USS tax relief optionsPay the charge
9 The influence of the USS Pensionable Salary Pension ServicesThe influence of the USS Pensionable SalaryDefinition per the scheme rulesThis 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 ServicesApplication of a back-dated Pay AwardBack-dated pay awards effective in a prior PIP tax yearWhen 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 awardedFor 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 yearIf 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 payableThis may be the solution for many members who have unused previous years’ allowances to reduce or remove a chargeHMRC web – Annual Allowance guidance
12 USS Money Purchase AVCs (Prudential) Pension ServicesUSS Money Purchase AVCs (Prudential)Contributions paid in a PIP year from April to MarchWarning! The amount shown on Prudential Annual Statement, although shows 31/03/XX, its actually March to February!Warning! Extracting figure from payslip YTD amountsPaying large amounts or paid lump sum in MarchConsider reducing/suspending for the remainder of the PIP yearReview position at start of new PIP yearContact Prudential directly
13 Tax Relief Options Pension Services USS rules changed – introduction of 3 options to help manage the impact of an AA/LTA chargeElections only permitted for those using it to remove/reduce a chargeUSS Factsheet, addendum to Tax Limits FactsheetForms – send all Election Forms to UCL Pension Services
14 USS options to mitigate tax charges Temporary cessationFS members onlyMax 6 monthsRetain life & incapacity benefitsAuto rejoin on following 6th AprilRejoin FS schemeSalary capElect for deferred benefitsFuture service FS but with salary capEnhanced opting outFS members onlyRetain life & incapacity benefitsCannot rejoin FSMust rejoin CAREFixed Protection election
15 Members’ responsibilities Pension ServicesMembers’ responsibilitiesPersonal taxation matterResponsibility of the employee to manage their own allowances and tax positionProvide the required notification to HMRC of a potential chargeCompletion and submission of any HMRC Self Assessment Tax Return (SATR)UCL provide you information, where to find out what you need to knowDeclare & Pay any AA chargeWhen you receive your Pension Savings Statement – check it!
16 USS’ Responsibilities Pension ServicesUSS’ ResponsibilitiesStatutory Deadline 6 October 2013Calculations run across the USS membershipFull pensionable service & salary historyUSS will provide a Pension Savings Statement for those whose AA value in the current year exceeds the AA limitFor those cases, automatically produce 3 prior PIP yearsUsing Carry Forward and other mechanisms may result in there being no tax charge payable
17 How a Tax Charge can be paid Pension ServicesHow a Tax Charge can be paidSelf Assessment Tax Return (SATR)Values produced by USS modeller accepted by HMRCUnder £2K will be expected to be paid immediatelyHMRC website – Information, deadlines etcWait for HMRC to send you the invoice/bill to pay the chargeScheme PaysUSS website – Information, rates etcIf charge £2K+ and is applicable to USS benefitsPermanent reduction to benefits, and increases year by year to retirementInform HMRC of this option
18 Paying an AA Tax charge (AAC) DateYour actionScheme actionApr - OctYou may request an AA calculationAuto provide you with AA calculation + 3 years, if > AAOct - JanAsk scheme of impact of reduction in benefits if you ask them to pay AACDecide whether to pay immediately the AAC or ask scheme toProvide you with impact scenario(s)JanSend HMRC your SATR with option – Pay AACJan - JulInform scheme you want them to pay AAC charge – make irrevocable election confirming thisProcess irrevocable electionDecReport to HMRC AAC to be paid – Pay AAC to HMRCJan +HMRC undertake compliance checks to match elections to payments – If no AAC paid then AAC reverts to you with demand for late paymentSo, 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 PIPIf 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 taxmanNow 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 pointThere 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 orHave the pension scheme pay any excess over the de minimus level immediately on your behalf orHave the pension scheme roll up the total of all of your AAC during membership and pay these to HMRC, with interest, at a BCEYou’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 HMRC18
19 Life Time Allowance (LTA) Pension ServicesLife Time Allowance (LTA)Reduced to £1.5M from £1.8M with effect from 6 April 2012A 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 pensionSome transitional Protection available – Primary (PP), Enhanced (EP) and Fixed (FP) - no longer able to apply for these
20 Life Time Allowance – calculation Pension ServicesLife Time Allowance – calculationOn a BCE, LTA equals total of :1. USS Pension pa x 202. USS cash3. Any pre-2006 pension pa already in payment x 204. Any lump sum received from a previous BCE5. 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 ServicesLife Time Allowance – things to considerIf you have any transitional protection, make sure you know the level of your protection and what actions are permitted to ensure cover is not lostUSS website – Tax Relief LimitsReview levels of Money Purchase AVCs & non-USS benefitsCheck the Pension Savings Statement issued by USSImpact of a salary increaseIf considering one of the USS tax relief limit options, know the effect on the amount of pension at retirementReview retirement plans – when & howSeek Financial Advice!
22 Will I need Financial Advice? Pension ServicesWill 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 ServicesIndependent Financial Advice – WhyUCL Pension Services & USS can:provide information about the scheme and your benefitsclarify technical issues/queriesdirect you to where guidance / information is locatedto enable you to make an informed decision about the options available / choices facing youbut CAN NOT give financial adviceComplex matters, difficult decisions to make, its natural you will want help in making a decision which is best for youYou 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 ServicesIndependent Financial Advice – WhereUSS worked closely with the Personal Finance Society (PFS)List of IFAs on webUnbiased.co.uk – Use their search service, tick your requirements and receive details of advisers close to your home or officeAlternative arrangements for the provision of advice may be provided your employer (as set out on USS web)Help from other organisationsBMAMoney 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 NorthamptonPre 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-ChapelIndependent Financial Advisers LLP25
26 Further Information Pension Services UCL Pension Services website:Tax Relief Limits, Guidance Note, Contacts detailsUSS website:Tax Relief LimitsAustin Chapel Independent Financial Advisors – Gary O’NeillMobile:Prudential Retirement Education ConsultantAustin Brydon.co.uk Mobile:
27 Outcomes of today’s presentation Pension ServicesOutcomes of today’s presentationGood or better understanding of the AA/LTAHow calculated & what factors influence the calculationsAware of your responsibilities & timescalesKnow where to locate information, who you should askKnow why you may need to seek independent adviceWhat will be the 1st action you take after leaving this room?HM Treasury Autumn Statement – what’s changed!!!!