EPN132 - Civil Service Pension Scheme

Audience

This Notice will be of particular interest to:

Action

To issue Office Notice 1 at Annex A as soon as practicable.

You should then issue the Office Notice 2 at Annex B after 16 December but no later than 16 January 2006

Timing

Immediate

This EPN is about one of the changes to the tax rules from 6 April 2006. This change could affect active classic members who have preserved pension benefits from a previous period of reckonable service. ‘Active classic members’ are staff employed in the Civil Service who decided to remain in the classic version of the PCSPS. ‘Preserved pension benefits’ apply when the member has previously worked for long enough to qualify for a pension in an organisation covered by the Civil Service pension arrangements.
classic members who have preserved benefits can choose to have separate pensions from their different employments or to “aggregate” their periods of service and have one pension award. They can choose when they next leave the scheme or when they reach pension age (normally 60), whichever is earlier.
From 6 April 2006 there will be an annual allowance for the amount by which the value of a member’s pension rights can increase in any tax year. In this context by pension rights we mean rights to future pension benefits under the scheme and any rights built up in a personal pension or money purchase arrangement such as additional voluntary contributions. In the year 2006/2007 the annual allowance will be £215,000. For the purpose of the annual allowance benefits are valued as follows:

the increase in defined benefit pensions (such as those in classic) is valued by multiplying by 10
money purchase increase is valued as contributions made in-year
the increase in any tax free cash sum is valued at face value.

If the value of a member’s pension rights increases by more than the annual allowance they will be charged tax on the amount by which the increase exceeds the allowance. Therefore, if the value of a member’s pension rights increases by £225,000, they will have to pay tax on the £10,000.
If a member chooses to aggregate two periods of reckonable service this may increase the value of their pension rights. If they aggregate on or after 6 April 2006, any increase in value of the pension rights will count towards the annual allowance. If the aggregation takes them over the annual allowance, they will be liable to pay tax. This will be the case for each year in which the increase in their pension rights exceeds the annual allowance. However, the charge will not apply in the tax year all their benefits in the scheme come into payment.
Cabinet Office, who manage the Civil Service Pension scheme, are giving active classic members a one-off option to aggregate their two periods of pensionable service before 6 April 2006. If members choose to aggregate after 6 April 2006 they may incur tax charges.
APACs will be issuing two types of letters, one for active classic members under pension age and another for active classic members over pension age. Both letters will give members the choice to aggregate. The letter for those over pension age will tell them that they will not have another opportunity to aggregate.

From October 2005 onwards your Authorised Pension Administration Centre (APAC) will send all affected members details of the options available to them. Your APAC will have some flexibility to decide on the timing once they receive the appropriate software. However, APACs have a deadline to tell affected members of their choice by 16 December 2005.

Please issue the office notice at Annex A as soon as possible. The Office Notice tells staff that the aggregation exercise is taking place and that your APAC may be sending them information. Staff must make their decision by 24th February 2006. Between 16 December and 16 January 2006
Your APAC should have contacted all relevant staff by 16 December. However, to make sure that all affected staff know they are able to aggregate in time to make their choice by 24 February, please issue the Office Notice at Annex B. The Office Notice asks staff who should have been included in the aggregation exercise to get in touch with your APAC if they have not yet been contacted. It is important to make sure all affected members of staff learn of the aggregation exercise and have the opportunity to make their choice.

Please tell members with queries about the aggregation exercise to contact your APAC as the issues for some staff may be complex.

If you are an employer who has staff in the Civil Service, but you are not part of the Civil Service, please amend the letters at Annex A and B accordingly. If you are in any doubt as to what changes you should make, please contact the employer helpdesk (details below).

Contacts:

Enquiries about content, distribution or to receive in a different format:

employerhelpdesk@cabinet-office.x.gsi.gov.uk
01256 846414
Employer Helpdesk
Civil Service Pensions
Grosvenor House
Basing View Basingstoke
RG21 4HG

EPN132 - Tax Simplification – Pension Aggregation Exercise