How Does Tax Affect My Pension?
(This web page is for UK based employees
(with UK taxable earnings) only paying into the Carillion
Tax Relief on Contributions
You can normally pay up to the lower of 100% of your taxable UK earnings or your Annual Allowance as pension savings in any one tax year and benefit from tax relief on the value of your contributions (subject to the level of your Annual Allowance and having taxable earnings above your personal income tax allowance).
How you receive tax relief will depend on how you have opted to pay your contributions to the Carillion Pension Plan ("the Plan").
If you take part in the Company's "Salary Swap" arrangements, your employer will pay the regular contributions for you in exchange for you giving up a corresponding amount of pay. As a result you pay a lower amount of tax (and National Insurance Contributions) as your salary is lower .
Alternatively, your regular contributions can be deducted from your salary before tax is calculated. You will then normally benefit from tax relief (subject to the rates prescribed by HMRC for each future tax year) as long as the total contributions you and your employer make (together with any other pension savings you have elsewhere) are within your Annual Allowance. Tax relief means that if you pay tax at 20% each £100 you pay into the Plan will currently only cost you £80 by deduction from pay (under current tax rules).
Any employer contributions you receive are currently not taxed as a 'benefit-in-kind' or subject to National Insurance Contributions.
Please note that the arrangements for tax relief are based on the current HMRC regulations, which may be subject to change in the future.
The "Annual Allowance"
For 'defined contribution' pension arrangements (savings based pensions like the Carillion Pension Plan) the Annual Allowance applies to the total contributions you and your employer pay to any UK registered pension scheme (not just a Carillion scheme) in any one tax year (the "pension input period" for most Carillion schemes, including the Carillion Pension Plan, runs from 6 April to 5 April and aligns with the Tax Year).
If the total amount of contributions in the pension input period exceeds your Annual Allowance, the excess is normally taxed (the "Annual Allowance Charge") based on the total level of your current earnings and the amount of "excess" pensions saving added together . Normally the individual will pay the Annual Allowance Charge due by completing a Self-Assessment tax return.
The Plan administrator will provide you with a "Pensions Savings Statement", if your savings under the Carillion Pension Plan exceed your Annual Allowance, to assist with the Self-Assessment tax return.
The standard Annual Allowance for 2017-18 is £40,000.
The clauses in the 2017 Finance Bill which would have introduced a new lower "Money Purchase Annual Allowance" of £4,000 per annum (currently £10,000 per annum) where defined contribution pension savings have been "flexibly" accessed were withdrawn prior to the 2017 General Election. The Government has re-introduced these provisions in the current Finance Bill and they will be applied retrospectively to 6 April 2017, although these provisions have not yet been enacted. This does mean that some members may be affected retrospectively and have to pay an Annual Allowance Charge depending on thier circumstances. Members are advised to seek financial advice if they think they may be affected.
The standard Annual Allowance is also tapered for "high earners" with total taxable earnings of £150,000 per annum or more (including the value of pension contributions). The Tapered Annual Allowance will reduce down progressively to £10,000 for individuals with an income of £210,000 per annum or more.
The rules around the definition of earnings and the threshold for exemptions for the Tapered Annual Allowance are relatively complex, and the Trustee recommends that members seek professional advice e.g. from an accountant or tax practitioner, if they are likely to be affected.
The "Lifetime Allowance"
The Lifetime allowance applies to the total value of your UK pension savings from all sources (except for the State pension) and is tested when you take the benefits from any registered pension arrangement.
For defined contribution pensions savings, the Lifetime Allowance value is simply the current fund value.
If the value of your benefits exceeds the Lifetime Allowance you will have to pay tax on the excess amount (the "Lifetime Allowance Charge"). Currently this is taxed at 55% for excess lump sum payments. Any income above the Lifetime Allowance is currently taxed at an individual's marginal rate of tax plus a 25% Lifetime Allowance Charge.
The standard Lifetime Allowance for 2017-18 is £1,000,000. The Government has confirmed that the standard Lifetime Allowance will increase in 2018-19 in line with CPI (the Consumer Price Index) for the year ending April 2018.
If members are likely to be affected by the Lifetime Allowance, the Trustee recommends that they consider seeking independent financial advice.
Pensions or Annuities in payment
Any income from an annuity policy is taxed under PAYE. The Plan does not pay any scheme pensions. Benefits are either secured under an annuity or paid as a lump sum or a transfer made to a pension arrangement of the member's choice.
Payments on Death
Payments from the Plan are normally paid free of tax if they are within the member's Lifetime Allowance and are paid before age 75. After age 75 any benefits paid from the Plan will be taxed differently depending on whether the payment is made to a nominated beneficiary or to someone acting on your behalf e.g. your legal personal representative. Further details are available from the Plan administrators.
If you have withdrawn your savings from the Plan you should contact your annuity or current pension provider for further details.
To view the HMRC website please click here: https://www.gov.uk/government/organisations/hm-revenue-customs
These notes are for general guidance only and employees should seek professional advice from an independent financial adviser or tax practitioner if they are likely to have any issues over tax and personal allowances.
All information is based on the current tax rates and regulations in force which may be subject to change in the future. Any benefits paid from the Plan will be subject to the tax rates and regulations in force at the time.
Version Control: 30 November 2017