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DC provider that allows Voluntary Scheme Pays

gadgetmind
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DC provider that allows Voluntary Scheme Pays

#99525

Postby gadgetmind » November 28th, 2017, 12:23 pm

Due to an unexpected bonus, I have hit full pension Tapered Annual Allowance for 2017/18 and have already exceeded the £10k by a few £k.

And thanks to sterling dropping on the referendum, and LTA reducing, I have also exceeded LTA by about £80k.

I'm 55 mid March and may need my PCLS before April 5th (it's complicated!) so might not even be able to benefit from the larger LTA.

Moving a pot to a provider that allows scheme pays for the just under £2k that I calculate is due for exceeding TAA would help. I have one pot with BestInvest who've already said "no" and one with Aviva, who haven't responded. I can easily move the latter to anywhere suitable.

All feedback welcome

DrBunsenHoneydew
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Re: DC provider that allows Voluntary Scheme Pays

#99630

Postby DrBunsenHoneydew » November 28th, 2017, 6:06 pm

gadgetmind wrote:Due to an unexpected bonus, I have hit full pension Tapered Annual Allowance for 2017/18 and have already exceeded the £10k by a few £k.

And thanks to sterling dropping on the referendum, and LTA reducing, I have also exceeded LTA by about £80k.

I'm 55 mid March and may need my PCLS before April 5th (it's complicated!) so might not even be able to benefit from the larger LTA.

Moving a pot to a provider that allows scheme pays for the just under £2k that I calculate is due for exceeding TAA would help. I have one pot with BestInvest who've already said "no" and one with Aviva, who haven't responded. I can easily move the latter to anywhere suitable.

All feedback welcome

The AJ Bell SIPP allows Voluntary Scheme Pays (but charges an admin fee of £75 in addition to the AA tax due). See https://www.investcentre.co.uk/sites/default/files/AJBIC_Scheme-pays_0.pdf

If you have exceeded the tapered annual allowance for 2017/18, you don't have to pay the charge until Jan 2019. Could you pay it from the PCLS you will get next year?

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Re: DC provider that allows Voluntary Scheme Pays

#99947

Postby TedSwippet » November 29th, 2017, 2:49 pm

DrBunsenHoneydew wrote:The AJ Bell SIPP allows Voluntary Scheme Pays ...

Thanks for the heads-up. I had no idea YouInvest offered this feature.

I take issue with one part of the AJ Bell's paper you linked to, though. They state that "An important point to remember is that the Annual Allowance Charge is not penal, it is simply reclaiming the tax relief that the individual is not entitled to above the Annual Allowance."

That would be true only if the contribution itself did not have to remain inside the pension. But because it does, it is again taxable on withdrawal. If you cannot use Scheme Pays this is pure double-tax, and 'penal'. If you can use Scheme Pays the result is slightly less bad, but you still end up paying tax again on what is now effectively post-tax income, also 'penal'.

Putting numbers on this, on the likely average case without Scheme Pays, 40% not relieved on the way in and 25% tax free and 20% tax on the remainder on withdrawal produces a blended rate of 55%, worse than not having made the pension contribution at all. In the worst case, 60% tax not relieved on the way in and 55% lifetime allowance penalty rate on the way out, for a 115% tax rate, most definitely penal.

Over the decade since 'pension simplification', pensions have morphed from reasonably straightforward tax-deferred retirement savings vehicles into potentially treacherous tax traps for the unwary and for higher rate tax taxpayers. No signs of any improvements on the horizon either, just plenty of media speculation on how they could become even worse.

gadgetmind
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Re: DC provider that allows Voluntary Scheme Pays

#100166

Postby gadgetmind » November 30th, 2017, 12:05 pm

I asked HL if they provided it and they said it's only the scheme into which you "over paid" that can do it, so I'll try Aviva with close to zero hope.

Paying the charge isn't the issue, it's trying to make it as tax efficient as I can that's the point of the exercise. Between this charge and the (almost certain) one for exceeding LTA, I'm going to be seeing £20k less in my pension, which ticks me off somewhat.

gadgetmind
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Re: DC provider that allows Voluntary Scheme Pays

#103602

Postby gadgetmind » December 12th, 2017, 1:30 pm

Wow, a mere three weeks after being asked, Aviva came back asking which tax year I wanted the scheme pays forms for, and said that 2017/18 could only be issued after this year year has ended.

I'm "somewhat surprised" !

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Re: DC provider that allows Voluntary Scheme Pays

#103662

Postby DrBunsenHoneydew » December 12th, 2017, 4:13 pm

gadgetmind wrote:Wow, a mere three weeks after being asked, Aviva came back asking which tax year I wanted the scheme pays forms for, and said that 2017/18 could only be issued after this year year has ended.

I'm "somewhat surprised" !

Are you saying they have agreed to allow Voluntary Scheme Pays?

gadgetmind
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Re: DC provider that allows Voluntary Scheme Pays

#103700

Postby gadgetmind » December 12th, 2017, 5:11 pm

I clearly asked about voluntary scheme pays and Taper Annual Allowance, they said just "scheme pays" in their reply leaving some room for doubt, but it sounds like they allow it.


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