Refund of excess contributions definition

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Finance Act 2004—figures, rates and limits

Finance Act 2004—figures, rates and limits Annual allowance The annual allowance is the maximum amount by which the value of an individual’s pension savings across all the registered pension schemes of which they are a member may increase in any year without tax penalties arising. Employer contributions also count towards the annual allowance. Annual allowance figures are shown in the table below. The annual allowance charge is levied where the annual allowance is exceeded. For further information generally, see Practice Note: The annual allowance. Tax year Annual allowance (£) Source 2023/24 onwards £60,000, subject to:—tapering for individuals with an ‘adjusted income’ in excess of £260,000 p.a. and a ‘threshold income’ in excess of £200,000 p.a. Tapering will be a reduction of £1 for every £2 by which their income exceeds £260,000, subject to a maximum reduction of £50,000 for those with an adjusted income of £360,000 p.a. or more. In other words, the minimum tapered annual allowance is £10,000 (£60,000 – £50,000), and—money purchase annual allowance of...

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Refunds of member contributions

This Practice Note does not cover refunds of contributions paid on the death of a member. For further information on these, see Practice Notes: Death benefits—final salary schemes and Death benefits—money purchase schemes.In this Practice Note, a reference to 'trustees' is also a reference to the manager of a registered pension scheme.In what circumstances can a refund of member contributions be made?A scheme may permit refunds of member contributions in any number of circumstances. For instance, if a defined benefit (DB) member has less than three months' pensionable service, then under current legislation, that member has no right to have their pension benefits preserved within a DB occupational pension scheme. It is usual for the scheme to offer that member a refund of their member contributions in such circumstances. For further information see Requirements for a short service refund lump sum, belowAuthorised member paymentsSignificantly, there are only two circumstances where a refund of member contributions will be an authorised member payment: •where it qualifies as a short service refund lump...

Pension commencement lump sums (PCLSs)

When a member of a pension scheme becomes entitled to receive their scheme benefits, they can usually take part as a tax-free lump sum. HMRC calls this a ‘pension commencement lump sum’ (PCLS). Taking a lump sum is usually at the option of the member who will need to elect the amount they take, but the scheme rules should be checked for procedural or other requirements. Under current legislation a PCLS is tax free, and so is usually an attractive option for members.Given the tax-free status, HMRC’s conditions for a lump sum to qualify as a PCLS are strict.This Practice Note first considers HMRC’s general conditions and then special conditions applying in particular cases.In a defined contribution (DC) scheme, a proportion of the member’s pension pot is simply paid to the member as cash.The situation is more complex for a defined benefit (DB) scheme, where a value must also be placed on the amount of pension that is given up for the lump sum. It is very unusual for scheme...

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When can overpaid pension contributions be recovered from a pension scheme?

When can overpaid pension contributions be recovered from a pension scheme? Once an employer or member has paid contributions into a scheme, they cannot generally get a refund, at least not without triggering the tax penalties associated with unauthorised payments. This is because such refunds will usually be treated as unauthorised payments. There are however a few exceptions: • for member contributions: ◦ where the scheme in question is an occupational pension scheme and the refund qualifies as a short service refund lump sum. For more information, see Practice Note: Refunds of member contributions—Requirements for a short service refund lump sum ◦ where the refund qualifies as a refund of excess contributions lump sum (whatever the type of registered pension scheme making the refund). For more information, see Practice Note: Refunds of member contributions—Refund of excess contribution lump sums ◦ where the refund is made in exercise by the member of a right to a statutory cooling off period in respect of a registered pension scheme (ie where...

Where a payer of child maintenance receives a pension lump sum, will that sum be treated as income by the Child Maintenance Service to calculate the child maintenance payable?

Where a payer of child maintenance receives a pension lump sum, will that sum be treated as income by the Child maintenance Service to calculate the child maintenance payable? The appropriate level of child support that a non-resident parent should pay the resident parent in respect of a qualifying child is calculated by the Child Maintenance Service (CMS) with reference to the non-resident parent’s gross income. How the gross income of the non-resident parent is to be calculated is explained in the Child Support Maintenance Calculation Regulations 2012 (CSMCR 2012), SI 2012/2677. The gross weekly income of a non-resident parent for the purposes of a calculation decision is a weekly amount determined at the effective date of the decision on the basis of either historic income or current income. Historic income is generally relied upon since to rely on current income, the non-resident parent would have needed at least a 25% change in their income since the historic income figure was obtained. Historic income is calculated...

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PO upholds complaint about pension scheme’s refusal to refund excess employer contributions to correct party (Mr D, CAS-32978-T3X8)

Pensions analysis: The Pensions Ombudsman (PO) has upheld a complaint about a refusal to return excess employer contributions to the correct party. Martin Scott of gunnercooke LLP looks at the decision.