Will I have all my pension conts refunded?

Dan06 · 01/10/14 - 17:09

I've decided to opt out of my pension scheme for a bit and have the money I've put in refunded. Question is do I get ALL the money back as I thought as someone else told me I won't have it all back due to tax etc. I've put in around £900 and they thought I'd have around £700 back. Is this correct?

Keefy-boy · 01/10/14 - 17:35

Unless you are over 60 I believe there is a special rate of tax of 55% to discourage people from doing that.

Richard1960 · 01/10/14 - 17:38

Depends what kind of sheme it is in the NHS for example if you have paid in for over 2 years you have to take it as a pension IE No refund.

To give proper advice we will need to know exactly what pension you are paying into.

Dan06 · 01/10/14 - 20:13

It's a Council pension. I've been paying for a year and they said if it's less than 2 years you can get the pension contributions back.

Richard1960 · 01/10/14 - 20:53

Dan06 wrote: »

It's a Council pension. I've been paying for a year and they said if it's less than 2 years you can get the pension contributions back.

Yep your okay then but you will have to pay tax on the refund sorry.

walterwhite · 02/10/14 - 13:19

Dan06 wrote: »

It's a Council pension. I've been paying for a year and they said if it's less than 2 years you can get the pension contributions back.

Is it final salary?

bart4858 · 02/10/14 - 16:54

Richard1960 wrote: »

Yep your okay then but you will have to pay tax on the refund sorry.

But £200 on £900 doesn't sound like the 55% that was mentioned.

More probably, it's the 20% income tax that would otherwise have been paid on the contribution.

Richard1960 · 02/10/14 - 16:58

bart4858 wrote: »

But £200 on £900 doesn't sound like the 55% that was mentioned.

More probably, it's the 20% income tax that would otherwise have been paid on the contribution.

Yes that is the case as far as i know.

Keefy-boy · 02/10/14 - 18:23

bart4858 wrote: »

But £200 on £900 doesn't sound like the 55% that was mentioned.

More probably, it's the 20% income tax that would otherwise have been paid on the contribution.

If you get money from the pension scheme, how much tax will you have to pay?
The tax charges can be up to 70 per cent of the liberated funds. The tax
charges include:
• up to 55 per cent for you as the scheme member
• between 15 and 40 per cent for the scheme administrator

http://www.hmrc.gov.uk/pensionschemes/liberationfs.pdf

bart4858 · 02/10/14 - 19:10

Keefy-boy wrote: »

If you get money from the pension scheme, how much tax will you have to pay?
The tax charges can be up to 70 per cent of the liberated funds. The tax
charges include:
• up to 55 per cent for you as the scheme member
• between 15 and 40 per cent for the scheme administrator

http://www.hmrc.gov.uk/pensionschemes/liberationfs.pdf

The OP said they will get £700 back out of the £900 paid in. This might because they are still within the 2-year period when they can withdraw their contributions without penalty, apart from (presumably) basic rate tax.

Richard1960 · 02/10/14 - 20:08

bart4858 wrote: »

The OP said they will get £700 back out of the £900 paid in. This might because they are still within the 2-year period when they can withdraw their contributions without penalty, apart from (presumably) basic rate tax.

Inded that sounds very much like it to me.

If that is the case basic rate tax wil lhave too be paid,as those pension contributions would have been tax free.

rjb101 · 02/10/14 - 22:37

If this is a final salary scheme? and do you expect to work for the council for a while? If the answer to both of these are yes it would be foolish to opt out unless you cant afford to eat/ pay rent ect. You may find in a few years time when you decide to opt back in its not a final salary scheme any more.

In fact, other than the reasons given above, opting out is a pretty dum move anyway

Keefy-boy · 03/10/14 - 00:18

bart4858 wrote: »

The OP said they will get £700 back out of the £900 paid in. This might because they are still within the 2-year period when they can withdraw their contributions without penalty, apart from (presumably) basic rate tax.

Where did you find that information?

bart4858 · 03/10/14 - 09:59

Keefy-boy wrote: »

Where did you find that information?

From post #4.

Richard1960 · 03/10/14 - 10:06

Dan06 wrote: »

It's a Council pension. I've been paying for a year and they said if it's less than 2 years you can get the pension contributions back.

Yes it's right that is the same with our NHS pubic service pensions.

Keefy-boy · 03/10/14 - 12:44

bart4858 wrote: »

From post #4.

But it didn't say without penalty!

I don't know the answer but I can't find anything on the net that substantiates that's possible under UK tax law.

bart4858 · 03/10/14 - 13:03

Keefy-boy wrote: »

But it didn't say without penalty!

I don't know the answer but I can't find anything on the net that substantiates that's possible under UK tax law.

The £700 refund from £900 implied there were no penalties other than basic tax. But I don't know if that was confirmed; maybe the person they asked was wrong. The OP would need to double-check this before agreeing.

However, if the 55-70% penalty did apply, then what is it that you can do in the first two years, that you can't do later?

varialectio · 03/10/14 - 13:30

Repaying tax if your pension contributions are refunded

You can usually only get your pension contributions refunded if you withdraw from an occupational or public service pension scheme within two years of starting payments. Certain events might shorten the time limit. For refunds made up to the end of the 2009 to 2010 tax year, tax is deducted at 20% for refunds of up to £10,800 and at 40% on any excess above this. For refunds made in the 2010 to 2011 tax year and later years, tax is deducted at 20% for refunds of up to £20,000 and at 50% on any excess above this. The scheme administrator deducts the tax before making the refund.

http://www.hmrc.gov.uk/incometax/relief-pension.htm#6

The two-year limit is built into most schemes (including the OP's apparently) although I don't think it's obligatory as shown by the first few words of the quote. Saves companies having to keep tiny funds active.

Keefy-boy · 03/10/14 - 13:41

varialectio wrote: »

http://www.hmrc.gov.uk/incometax/relief-pension.htm#6

The two-year limit is built into most schemes (including the OP's apparently) although I don't think it's obligatory as shown by the first few words of the quote. Saves companies having to keep tiny funds active.

Looks like the definitive answer.

Richard1960 · 03/10/14 - 16:39

Keefy-boy wrote: »

But it didn't say without penalty!

I don't know the answer but I can't find anything on the net that substantiates that's possible under UK tax law.

If you have less than two years’ membership, including any transferred into your LGPS pension from other schemes, then Pensions Services may refund your contributions less a tax and National Insurance charge.

From ther local government pesion scheme website.:)

Richard1960 · 03/10/14 - 16:46

varialectio wrote: »

http://www.hmrc.gov.uk/incometax/relief-pension.htm#6

The two-year limit is built into most schemes (including the OP's apparently) although I don't think it's obligatory as shown by the first few words of the quote. Saves companies having to keep tiny funds active.

No its not obligatory but most schemes will pay pack less then two years contributions as a concession,in my deralings with the NHS final salary pension scheme i have never known of a refusal to pay back less then two years contributions.

As i often have advised members who ask me this question as a Unison Rep,

Hey there!

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Will I have all my pension conts refunded?

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