Final Salary AA Tax Charge
Yonkers420
Member
Hi All,
Wondered if someone could assist/point me in the right direction re the below.
We have a client who has exceeded the AA within a Final Salary scheme (no carry forward available) and it is by a considerable amount c£40,000 over the AA
Generally speaking, how do schemes reduce benefits when you elect for scheme pays, as with money purchase its quite straight forward, I just wondered with DB schemes is it better to pay the charge out of your own pocket so to speak via self assessment?
My reasoning behind this is that it would be better to pay the charge from non guaranteed benefits i.e ISAs that can fluctuate in value etc vs paying the charge from guaranteed inflation proofed benefits.
Has anyone been in this situation before/able to provide some guidance?
Thanks
Comments
There will be a factor, like how commutation is calculated in some schemes in exchange for Tax-Free Cash.
The only way to really be able to answer the question is to ask the administrators what the factor is for the scheme in question. In my experience, you sometimes get blank faces asking that question (depending on the size of the scheme). If it hasn't happened to a member before, the factors likely won't have been decided yet.
Generally, i'd say it's the classic 'if you live longer than the average Joe, you'd be better off using Scheme Pays'
Thanks Aron, Appreciate the reply, ill get in touch with the scheme.
It's also worth checking whether there is any 'interest' applied to the AA charge if paid by the scheme. I have seen this for a client and it does add up to a sizeable sum when rolled up!