Bajie

Just heard from a colleague that the government intend to increase the amount of tax paid by people who have Executive Pensions .
Anyone out there know if this is true?

The_Gza

Bajie,

Like Paddington Bear I'm on the case

I shall check with some of the techie bods at my work to find out if there has been any recent announcements re: Executive Pensions.

I shall then translate their reply into english and let you know.

The_Gza

Bajie,

According to our techie bods, "there have been no tax changes that affect EPPs".

Which is remarkably straightforward for them - I presume they have missed out some small print that they want me to include "Past announcements cannot be taken as a guide to future announcements. Your sanity may be at risk if you work within Financial Services" etc etc


If I do hear of any, I'll let you know.

Cheers

RESSE

iTrader: (1)

Big changes for personal pension holders in light of the Stakeholder Pension.

Information only, as I am not permitted by the Financial Services Act 1986 to give you advice.

Richard Etheridge MIFP, MLIA (dip), FPC

Bajie

It would appear you will get stung when transferring your EPP into another type of fund.
Have been forwarded these links and am trying to make sense of them

GM

Prepare to be bored - this has the making of a monster post! No advice is being given, no responsibility accepted, these are my personal opinions and not those of my employer, seek professional advice etc etc.

This is a bit techie so I've tried to simplify it a bit so that real people can understand it

First, some background. There are two basic regimes under which pension schemes can be approved - occupational schemes and personal pension schemes. An executive pension is a type of occupational pension scheme.

Because there are tax benefits given to pension schemes, the Inland Revenue restrict the amount that can be provided under an approved pension scheme. For an occupational scheme the limit is expressed in terms of the amount of pension the scheme can pay you. For personal pensions the limit is based on the amount of cash you (and your employer if he feels inclined) can invest each year.

You can of course transfer your benefits from one type of scheme to the other. If you go from a personal pension to an occupational scheme the total pension is subject to limit - pretty much the same as would have happened if you had just left the personal pension benefit where it was. The real complication comes where you want to transfer from an occupational scheme to a personal pension. It's too late to work out a limit on contributions cos they've already been paid. So the Inland Revenue insists on a check on the amount of the transfer value - but only if you are in what they consider as a kind of high-risk category.

This is the "GN11 Test" you'll see mentioned in the Barnett-Waddingham links. The "GN11" bit refers to "Guidance Note 11" prepared by the Actuarial professional bodies. At the moment you have to have this test done if you're either a Controlling Director or if you are over 45 and earn more than the "earnings cap" - £91,800 at the moment. The idea is that the test compares how the value of your pension fund compares with the value of the maximum pension you would be allowed at retirement. GN11 sets out a basis for working this out. If your fund exceeds the maximum figure worked out that way then you have failed the test and you aren't allowed to transfer to a personal pension. You're not even allowed to transfer the maximum amount and either leave the rest where it is or forfeit it. The Revenue won't let you take a partial transfer (apart from some special situations) and "Preservation" requirements say you must have the full amount of your benefits.

The changes coming in from 6 April this year have two main effects. Firstly, they will make more people subject to the test - non-Controlling Directors who are 45 or over will have to pass the test if they earn £45,900 rather than £91,800. Secondly, the basis for the test has changed. There may be some people who are better off with the new test but they will be a small minority.

No-one is going to lose anything - other than the right to transfer to a personal pension. If you fail the test you have to stay in the occupational scheme but there isn't going to be any reduction in your fund or anything like that.

When the new regulations were issued in draft format last autumn it looked as if you would be able to transfer even if you failed the test - but you would have to give up any part of your fund in excess of the max. The final version was changed so this option isn't available - if you fail the test you can't give up part of your fund and transfer the rest, you've got to keep it all where it is. Some of the links are from last autumn and are now incorrect. And the latest "Times" one is just plain wrong IMHO when it talks about transfer values being reduced.

GM