How Does Tax Affect My Pension?
This web page is only for UK based
employees (with UK taxable earnings) and is for information
only. Members should seek independent financial
advice over any personal issues or tax liabilities. This page was
last updated in October 2018. Please note that the tax
treatment of benefits will be subject to the HMRC regulations in
force at that time.
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 the Carillion Pension Plan runs from 6 April to 5 April and aligned with the Tax Year).
If the total amount of contributions in the pension input period exceeds your personal 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 standard Annual Allowance for 2018-19 is £40,000.
A lower "Money Purchase Annual Allowance" of £4,000 per annum applies to members where any defined contribution pension savings have previously been "flexibly" accessed.
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 "Lifetime Allowance"
The Lifetime Allowance ("LTA") 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. With the new "pension freedoms" this means your benefits may be tested, at different times, against your remaining personal LTA as you may "stagger" taking benefits.
For defined contribution pensions savings, the LTA value is simply the current fund value taken when you withdraw your savings.
If the value of your benefits exceeds your personal LTA 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 your personal LTA is currently taxed at an individual's marginal rate of tax plus a 25% Lifetime Allowance Charge.
The standard LTA for 2018-19 is £1,030,000.
Pensions or Annuities in payment
The Plan does not pay any scheme pensions. Benefits are either secured under an annuity in the member's own name or paid as a cash lump sum or a transfer made to a registered pension arrangement of the member's choice. Please contct your provider for furtehr details.
Payments on Death
Payments from the Plan are normally paid free of tax if they are within the member's LTA 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 current annuity 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: 4 October 2018