This update provides information on upcoming pension tax considerations for 2017/18 including notification of important tax deadlines and key information on changes in pension arrangements.
This information is intended to help with member tax queries and planning. This will apply to mainly USS members, however NHS and SAUL members can use this as a guide.
Deadline for Voluntary Salary Cap Elections
The deadline for new Voluntary Salary Cap (VSC) elections to be received by USS is 3 March 2017.
The Voluntary Salary Cap feature was introduced in 2016 and is intended to meet a specific and practical aim of allowing members to manage their annual pension accrual when annual allowance and/or lifetime allowance limits might lead to a tax charge being incurred.
New VSC elections will apply from 1 April 2017. Previous VSC elections will carry over into the next tax year automatically, and those members who previously set the VSC at (or very close to) the level of the 2016 threshold will have their VSC set to the level of the new 2017 threshold. Please note, USS cannot accept late notifications and any queries should be raised urgently and definitely before the 3 March 2017 deadline. VSC elections can only be made annually, so once the deadline has passed, members will not be able to make VSC elections until March 2018.
To help members choose the level of their VSC, we have designed an annual allowance worksheet,available from the tax page of the USS website, which can be used to estimate:
• a member’s accrual over the 2017/18 year in USS using their (capped) salary; and
• their tapered annual allowance.
Please note that the worksheet is to be used as an estimate only, and a number of simplifications and assumptions have been made in the calculation shown. The worksheet does not provide any guarantee that members will or won't be subject to tax charges, and we strongly recommend that members take independent financial advice before making any decisions, or refrain from making any decisions, in respect of their USS benefits.
Useful documents and information
The annual allowance worksheet and VSC factsheet are both available from the tax section of the USS website.
Scheme Pays is a facility which allows members to request that USS pays an annual allowance charge on their behalf, in return for a corresponding reduction to their pension benefits.
Scheme Pays deductions will now, where available, be made from members’ USS Investment Builder funds in the first instance.
However if a member does not have any/enough USS Investment Builder funds to pay the charge, then a deduction will be made to their USS Retirement Income Builder benefits - please see the Scheme Pays factsheet for more information.
• Members must notify HMRC of the amount to be paid by Scheme Pays for the 2015/16 tax year by 31 January 2017 via their self-assessment tax return.
• The deadline for members to request Scheme Pays from USS is no later than 31 July 2017.
Useful documents and information
The Scheme Pays factsheet can be found on the tax section of the USS website.
The Scheme Pays Modeller is now available for members’ 2015/16 tax charges. Please note: the modeller will show deductions to be made from USS Retirement Income Builder funds as if there are no USS Investment Builder funds available. If the member has USS Investment Builder funds available, then the charge will be taken from their USS Investment Builder in the first instance.
Pensions Tax Changes
While the Autumn Statement announced no major changes that will affect members’ USS benefits, the proposed reduction in the Money Purchase Annual Allowance (MPAA) from £10,000 p.a. to £4,000 p.a. is worth noting.
USS have provided detailed information about the MPAA online including guidance on when it is triggered. Importantly, the MPAA does not apply to a member on taking flexible retirement from USS, even if they are taking some of their USS Investment Builder funds as tax-free cash alongside their pension.
The MPAA can currently only be triggered in USS by withdrawing funds from the USS Investment Builder as an uncrystallised funds pension lump sum (“UFPLS”) after retiring or flexibly retiring. However, if members have other pension savings outside USS, the MPAA could be triggered through those arrangements before retirement, although in this case it is the member’s responsibility to inform their pension providers (including USS) that they have triggered the MPAA.
Individual Protection 2014
The deadline for members to apply for Individual Protection 2014 (IP2014) from HMRC is 5 April 2017. There is currently no deadline for applications for IP2016.
Applications for IP2014, IP2016 or Fixed Protection 2016 (FP2016) are now made via HMRC’s new online service. Members who previously applied for IP2016 or FP2016 via the interim paper-based process earlier in the year can now also log into this service to obtain their permanent reference number.
Further information can be found on the HMRC website
Pension Wise – if members need some impartial guidance about the options they have with the USS Investment Builder, and if they are aged over 50, then they can contact Pension Wise – either by telephone: 0800 138 3944 or online at: www.pensionwise.gov.uk. Pension Wise is a free and impartial government service set up to give guidance on options under defined contribution schemes, like the USS Investment Builder. Pension Wise is accessible face-to-face, over the telephone or online. Pension Wise will not be able to assist with advice on benefits from the USS Retirement Income Builder.
Members should consider taking independent financial advice in order to help decide whether or not you will be affected by pensions tax and/or if you should consider using any of the options available.