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Beware Of Breaching Allowances

It has become evident that with the changes to pensions – and particularly limits on the benefit (value) that can be paid into a pension – more officers are coming close or breaching the Annual Allowance.

In the main the issue will affect people of higher rank, but I have become aware of an Inspector who has recently been served notice of a breach or potential breach.

An Annual Allowance breach occurs when an officer’s pension benefits increase in a single tax year by more than the limit set.

If the cap is exceeded then a tax charge is incurred.

For 2020/21 (and the previous five years) the limit has been set at £40,000 and applies across all pensions that you may have.

The good news is that there is some allowance carry over allowed across the previous three tax years.

A Lifetime Allowance breach occurs when an officer’s total pension benefits increase beyond the lifetime limit.

As this is currently set at £1,073,100 and increasing annually, it is therefore highly unlikely to affect any Federated police officer.

Should you get to the point of breaching either cap or getting close to them, the force (via XPS Pensions Unit) will notify you of this in writing with details of what you need to do.

It is of paramount importance that you act on this communication and do not ignore it, as otherwise you could find yourself owing a significant liability to HMRC.

Secondly, you may also find that you are required to register for Self Assessment and complete an annual tax return.

Failure to do this could lead to additional penalties from HMRC.

It is therefore in your own interests to ensure that you deal with the issue as a matter of urgency and take advice as necessary to protect your financial position. Individual Federation Reps are unable to give any form of pensions advice. By law, advice can only be given by a registered financial advisor, pensions advisor or tax accountant.

Although we cannot advise you, we may be able to signpost you to an appropriate advisor, who can give you the relevant advice.

Craig Grandison
Vice Chairman & Treasurer

Date posted: December 5, 2020

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