At No. 8 in our enquiry charts we have the tricky subject of tax and Lifetime Allowance
Q: I will retire just before my 55th birthday and thereby qualify for an Early Departure Payment (EDP) from that scheme. How is this treated for Lifetime Allowance LTA purposes?
A: EDP is not pension and as such you will not be assessed for LTA purposes until your AFPS05 pension comes into payment at 65 (or earlier if you opt to take your pension after age 55).
Many service people that have taken AFPS 05 EDP do not know that they will be assessed for a Benefit Crystallisation Event (BCE) at age 65 when their EDP stops and is replaced by their AFPS05 pension.
Q: I have Individual Protection 2016 (IP16), I am still serving. I am now in the process of divorcing and expect to agree a Pension Sharing Order (PSO) in due course. Is my existing LTA protection likely to be affected?
A: Yes, your pension debit is likely to result in a reduction in your protected amount. If the reduced protection figure is less than £1,000,000 then you will lose your IP16 altogether. If the reduced figure is still above £1,000,000 then HMRC will issue you with a new IP16 reference number reflecting the reduced protection. It is vitally important that you advise HMRC of the existence of your PSO, the “appropriate amount” of the pension debit, and the “transfer day”. This must be done within 60 days of the date of the discharge notice that Veterans UK will issue or else you could be liable to further penalties.
See you back here tomorrow for No.7 – Annual Allowance