From the trustee directors The annual allowance and you

Transcription

1 For deferred members of the GE Pension Plan (the plan ) July 2018 From the trustee directors The annual allowance and you An update for members who went over their allowance in the 2017/2018 tax year The annual allowance is the maximum amount that you can add to the value of your pension savings each year without paying tax. If your pension savings go up You need to by more than the annual allowance, you pay a tax start thinking charge on the amount that you go over the allowance. about whether If you were an active member of the plan during you might have gone the 2017/2018 tax year and went over your annual over your annual allowance during this period, you will have choices about allowance in the 2017/2018 tax year how you pay your tax charge. These include using our and, if you have, Scheme Pays arrangement. what you might This guide tells you what you need to know. Click on the want to do about links on the right to find out more. it. Please read this guide carefully. GE PENSIONS How to work out your annual allowance Page 2 How to measure your progress against your annual allowance Page 3 What happens if you go over your annual allowance Page 5 How to pay the annual allowance charge Page 6 Next steps Page 10 Finding out more Page 13 Scheme Pays enquiry form

2 How to work out your annual allowance 2 The annual allowance is the maximum amount that you can add to the value of your pension savings each year without paying tax. If your pension savings go up by more than the annual allowance, you pay a tax charge on the amount that you go over the allowance. For the 2017/2018 tax year, this will include your earnings at GE and your current employer, and any other taxable income you received (for example, from other jobs or positions you might have, investments or rental properties). In the 2017/2018 tax year, most people had an annual allowance of 40,000. However, higher earners may have a lower annual allowance. This is likely to affect you if, in the 2017/2018 tax year, your total taxable income was over 150,000. In these cases, the annual allowance goes down gradually by 1 for every 2 of income above 150,000 until the allowance reaches a minimum of 10,000. So if you have an income of 210,000 or above, your annual allowance will be 10,000. There is more information about this on the Government website, along with instructions on how to work out your annual allowance. On top of your annual allowance for the 2017/2018 tax year, you can also carry forward any annual allowance you did not use in the three years before. There is more information about how carry forward works on the Government website.

3 How to measure your progress against your annual allowance 3 As explained on page 2, the annual allowance is the maximum amount that you can add to the value of your pension savings each year without paying tax. In the 2017/2018 tax year, this will include: the main benefits you built up in the plan; any additional voluntary contributions (AVCs) you paid through the plan or GE s Pension Saver between 6 April 2017 and the date you became a deferred member; and any pension savings you may have built up in other registered schemes (such as another employer s scheme) during the tax year. These amounts are calculated in different ways. For example, in a defined benefit arrangement like the plan, the amount that counts towards the annual allowance is the change in the value of your pension savings over the tax year. This is not straightforward to work out. However, the calculation below will give you a rough idea of the main plan benefits that will count towards your annual allowance. The amount of your main plan benefits at the date you became a deferred member (which you can find on your leaver s statement) minus In a defined contribution arrangement like GE s Pension Saver, it is the total contributions paid in to your savings account that counts towards the annual allowance. Your plan benefits on 5 April 2017 (which you can find on page 4 of your 2017 benefit statement) multiplied by 16 CONTINUED

4 4 If our records show that the rise in the value of your main plan benefits (not including any additional voluntary contributions) went over your annual allowance during the 2017/2018 tax year, we will write to you in early October to let you know. If you want more information about the pension savings you built up during the 2017/2018 tax year, please contact the administrators of the schemes in question. There is more detailed information about the annual allowance on the Government website. The address is: If you are not sure about your tax position, we strongly recommend that you speak to an independent financial adviser, or IFA (see page 14).

5 What happens if you go over your annual allowance? If you have gone over your annual allowance (after taking into account any unused annual allowance from the previous three years), you will need to tell HM Revenue & Customs (HMRC) by filling in a Self Assessment tax return. If you do not normally fill in a Self Assessment tax return, you will need to register with HMRC. Go to 5 You will need to confirm the amount by which your total pension savings are more than your annual allowance. This includes your pension savings in the plan and any pension savings you may have built up in other arrangements outside the plan. HMRC will use this information to work out your tax charge. This will be based on the highest rate of tax you pay. EXAMPLE 1: MAURICE Annual allowance Maurice s total taxable income during 2017/2018 was 160,000. This means his annual allowance was 35,000. Pension savings During 2017/2018, the total value of his pension savings in the plan went up by 37,000. The value of his main plan benefits went up by 33,000. He also paid 4,000 in AVCs during this period. This means his total pension savings in GE schemes went over his annual allowance by 2,000. Annual allowance charge Maurice pays tax at the 45% rate. This means the tax charge that applies to his GE pension benefits is 900. EXAMPLE 2: HELEN Annual allowance Helen s total taxable income during 2017/2018 was 210,000. This means her annual allowance was 10,000. Pension savings During 2017/2018, the total value of Helen s main plan benefits went up by 55,000. She was not building up any defined-contribution (DC) benefits or AVCs through the plan. This means her main plan benefits went over her annual allowance by 45,000. Annual allowance charge Helen pays tax at the 45% rate. This means the tax charge that applies to her plan benefits is 20,250.

6 How to pay the annual allowance charge You need to pay any tax charge due for the 2017/2018 tax year by 31 January You will be able to tell HMRC how you want to do this on your tax return. You will have two options. Paying direct You can pay the tax charge yourself through the self-assessment process. There is information about this on the Government website at Using Scheme Pays As long as you are eligible, you can ask the plan administrators to arrange to pay some or all of the tax charge that applies to your plan benefits. The administrators will take the amount of this charge from your plan benefits and reduce them by a corresponding amount. This option is called Scheme Pays. If you decide to use Scheme Pays, the administrators will take the tax charge from your benefits in the following order. If you have any DC benefits or AVCs, they will use these up first (see example 1 on page 7). If your DC benefits or AVCs (or both) do not cover the tax charge, the administrators will take the balance from your main plan benefits. If you do not have any DC benefits or AVCs in the plan, they will take the tax charge from your main plan benefits (see example 2 on page 8). The plan administrators will keep a note of the deduction on your member record. If you have used Scheme Pays more than once, the plan administrators will assess and record each request separately. We explain the Scheme Pays process available through the plan in the section called Next steps on page 10. Who can use Scheme Pays? You can use Scheme Pays if: you are a current active member of the plan; or you were an active member during the tax year before the one in which you use Scheme Pays. For example, if you use Scheme Pays to settle your tax charge by 31 January 2019, you will need to have been a member during the 2017/2018 tax year. You can use our Scheme Pays process if you have gone over the annual allowance in other GE pension schemes. However, if you have gone over the annual allowance in other non-ge pension schemes, please contact the administrators of those arrangements and ask them to confirm your options when it comes to paying the tax charge on those benefits. CONTINUED 6

7 7 In 2017, the trustee directors decided on a new approach to Scheme Pays, making it available as an option for all eligible members whose plan benefits go over the annual allowance. This is because the recent changes to the annual allowance mean more people are likely to go over it. Scheme Pays gives you another option you might find helpful when deciding on the most appropriate way to meet the annual allowance charge. EXAMPLE 1: MAURICE Maurice s annual allowance tax charge for 2017/2018 is 900. He decides to use Scheme Pays to pay his tax charge. As explained on page 6, the plan administrators use his AVCs to pay the tax charge. At 31 December 2018, the total value of Maurice s AVCs was 30,000. The plan administrators take 900 from this fund to cover his tax charge. If you have a tax charge of more than 2,000, you can decide to pay this from your plan benefits using the previous method, called mandatory Scheme Pays. This works in a similar way to the new approach explained in this guide, but different timescales apply. However, to make sure we deal with your tax charge efficiently and to make sure there is consistency between members, we are encouraging all members who want to use Scheme Pays to use the process set out in this guide. CONTINUED

8 8 EXAMPLE 2: HELEN Helen s annual allowance tax charge for 2017/2018 is 20,250. She decides to use Scheme Pays to pay her tax charge. As Helen is not building up any DC benefits or AVCs through the plan, the plan administrators take the tax charge from her main plan benefits. First, they work out the amount that Helen s plan benefits need to be reduced by. They do this by dividing the tax charge by a factor that is set each April and is based on your age. The older you are, the bigger the factor and the smaller the reduction to your plan benefits. (For more details, see The current Scheme Pays factors on page 9.) As a 45-year-old, the Scheme Pays factor that applies to Helen is currently This means Helen s pension would be reduced by: 20,250 divided by = 1,457 a year. This reduction of 1,457 will be increased from 5 April 2018 to the date Helen retires, in line with the change in the Consumer Prices Index (up to an overall maximum of 2.5% a year). The plan administrators will keep a note of the deduction on Helen s member record. CONTINUED

9 9 The current Scheme Pays factors Age of member Scheme Pays conversion factor Age of member Scheme Pays conversion factor Age of member Scheme Pays conversion factor

10 Next steps 10 Here is a summary of the dates and action points you need to be aware of if your plan benefits go over the annual allowance and you are interested in using Scheme Pays to pay the tax charge Between now and early October 2018 Read this guide carefully. Start gathering information about the value of the pension savings you built up during the 2017/2018 tax year. If you do not have this information to hand, please contact the administrators of the pension scheme(s) in question. Use the resources and calculator on the Government website to work out whether you might have gone over your annual allowance during 2017/2018 and so may need to pay a tax charge. If you are not sure about your tax position, we strongly recommend that you speak to an IFA. Early October 2018 If our records show that the value of your main plan benefits (not including any additional voluntary contributions) went over your annual allowance during the 2017/2018 tax year, we will write to you by early October to let you know. If you have gone over your annual allowance You will need to fill in a Self Assessment tax return (see page 5). On this form, you will need to tell HMRC how you want to pay the annual allowance charge. We strongly recommend that you speak to an IFA to work out the most appropriate way to do this If you think you might want to use Scheme Pays to pay some or all of your annual allowance charge, you will need to know how this will affect your plan benefits before you finalise and send in your tax return. The first step is to fill in and return a Scheme Pays enquiry form. (This allows you to confirm the amount of your annual allowance charge.) The form is at the end of this guide. CONTINUED

11 October 2018 By mid-november December January 2019 February 2019 The plan administrators must receive your filled-in Scheme Pays enquiry form by this date. The plan administrators will send you a statement that shows how your plan benefits would be reduced if you decide to use Scheme Pays to meet some or all of the annual allowance charge. The administrators will also send you a confirmation form. You will need to fill in and return this form if you decide to use Scheme Pays to pay some or all of your annual allowance charge. If you decide to use Scheme Pays to pay some or all of your annual allowance charge, the plan administrators must receive your confirmation form by this date. This is the HMRC deadline for sending in your Self Assessment tax return online. The plan will pay your annual allowance charge under the Scheme Pays arrangement. Your plan benefits will be reduced by a corresponding amount. The plan administrators would write to you to confirm that they have used the Scheme Pays arrangement to pay your annual allowance charge. CONTINUED

12 12 REMEMBER! Scheme Pays is only available to eligible members. You will be eligible if: you are a current active member of the plan; or you were an active member during the tax year before the one in which you use Scheme Pays. For example, if you use Scheme Pays to settle your tax charge by 31 January 2019, you will need to have been a member during the 2017/2018 tax year. You can use Scheme Pays if the value of your pension savings in the plan goes over the annual allowance. You can use Scheme Pays to pay some or all of any annual allowance charge that applies to any GE pension schemes that you belong to. Scheme Pays is not available to deferred members who left the plan before the most recent tax year. In other words, if you became a deferred member before 6 April 2016, you will not be able to use Scheme Pays to settle any tax charges incurred for 2017/2018 tax year. You cannot use Scheme Pays to help pay any other tax charge you might need to meet. It can only be used to pay the annual allowance charge. You cannot use Scheme Pays to pay any annual allowance charge that applies to benefits built up in other pension arrangements outside of GE. You will need to contact the administrators of those arrangements and ask them to confirm your options when it comes to paying the tax charge on those benefits.

13 Finding out more 13 The GE Pensions website The GE Pensions website contains general information about the plan, along with answers to frequently asked questions. It includes a link to the password-protected member website where you can see personalised details about your benefits, along with the latest plan news and documents. If you are a former member of the DI UK Pension Plan, you do not have access to the password-protected member website at this time. The plan administrators If you cannot find what you are looking for online or you have a question about your benefits or something you have read in this document, please contact the plan administrators. Their contact details are on the GE Pensions website. For information about the annual allowance The Government website This website contains detailed information about the annual allowance. This includes how to work out your annual allowance and how much of the allowance your pension savings have used up. CONTINUED

14 14 If you need advice If you are not sure about your tax position, we strongly recommend that you speak to an IFA before you make any decisions. This is important. Along with the company, we aim to provide you with helpful information, but your tax situation is ultimately your responsibility. This includes any tax charge that might arise if you go over the annual allowance, the information you give on your Self Assessment tax return and how you choose to pay the annual allowance charge. If you do not already use an IFA, you can find one in your area by visiting simply type your postcode into the search bar on the homepage. Before you appoint an IFA, check that they are registered with the Financial Conduct Authority. Go to or phone their helpline on SB6175

15 Scheme Pays enquiry form Please fill in and return this form if you think you might want to use Scheme Pays to pay some or all of any annual allowance tax charge you have to pay for the 2017/2018 tax year. The plan administrators must receive your filled-in form by 31 October GE PENSIONS Your details Title Surname Other names Home address Date of birth Member reference Your signature Signed Your confirmation The annual allowance charge that I am interested in settling using Scheme Pays is I confirm that: (Please tick one box.) I am a I am not a Scottish taxpayer. Scottish taxpayer. I understand that if I am eligible to use Scheme Pays, the plan administrators will send me a statement that shows how my plan benefits would be reduced if I decide to use Scheme Pays to meet some or all of the annual allowance charge. They will also send me a confirmation form to fill in if I decide to use Scheme Pays. Date Please send your filled-in form to the plan administrators by 31 October Their contact details are on the GE Pensions website.

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