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Pension contributions - what is deemed a diversion of income ?

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edpacket
(@edpacket)
Eminent Member Registered
  • @Will99 what do you mean with additional pension contributions? 
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Posted : 15/09/2021 6:38 pm
Will99
(@Will99)
Trusted Member Registered
Posted by: @edpacket
  • @Will99 what do you mean with additional pension contributions? 

I am a member of my current employer's pension scheme which both my employer and I make contributions to (my contribution coming out of my gross remuneration) - the level of these contributions is fixed as stated in my contract of employment. My gross salary for tax is reduced by my contributions. This is a defined benefit pension scheme so I know precisely what my retirement income will be from this. This has been in place for the entire 18 years that I have been employed at my current employer.

In addition, I also have the opportunity to make Additional Voluntary Contributions (AVCs) if I so wish, which are also deducted from my gross remuneration at source in my payroll, so these also reduce my gross taxable income. These contributions go in to a 'defined contribution' scheme which is separate from the defined benefit one I mention above. So these contributions go in to a pot of money which I can use at retirement to eg. buy an annuity. I have only recently started making these AVCs, in an effort to boost my retirement income as I approach retirement. 

This is where it all gets a bit complicated - I have a property which I let out and now receive an income from. I have rented this property out for some years but it has only recently started to make a taxable profit and it was always my intention to plough this profit (when it materialised) in to my pension rather than have it taxed as additional income today. So I achieve this via my AVCs :- broadly speaking the AVCs I make offset the profit I get from my property. The AVCs reduce my earned income, and the property profit is 'unearned income' which is included in the CM assessment - the overall impact being that my gross taxable income has remained broadly the same as before my property started making a profit.

The AVCs have already been deemed as 'not excessive' by an earlier consideration of a 'diversion of income' variation requested by my ex, however as part of a subsequent 'notional income' variation request I made full financial disclosure of ALL my assets, including some other (defined contribution) pension funds which have been lying around untouched for decades and which were as a result of prior work as an IT contractor (i.e. with no employer provided pension). So the CMS didn't know about these funds in the earlier 'diversion of income' variation request. 

So the CMS have decided to include the full value of these AVCs - depsite the fact that they were earlier deemed 'not excessive' in the diversion of income variation request, and despite the fact that my TOTAL contributions are well below the allowable levels in the FSA table which is para 36014 at the link below (though it has to be said that that table is not very helpful when it refers to the date that contributions STARTED, and that throughout my working life I have had a very mixed pattern of pension contributions, some considerable time not making any contributions at all). Also despite the fact that (by my own calculations) my TOTAL retirement income from ALL sources is at or near the threshold given in parapraph 36020 of the document that jgdad mentioned and edpacket provided a link to :-

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1012626/volume-3-variations.pdf

I do note in the same document :-

36019 The DM should initially refer to the FSA`s guidelines (see paragraph 36014) with the Pension
Commission guidelines (see paragraph 36020) to be used as an alternative source in borderline and
complex cases, or cases where the NRP or PWC disputes the initial decision.

So it seems that I should at least be able to challenge the decision and request the CMS follows this document - and uses the table in para 36020.

It is SO draining and stressful. I actually offered my ex- to pay 50% of ALL childcare costs specifically to avoid going the CMS route (we each earned similar sums) but in the main to retain as big a role a father post-separation that I could. So this all seems so utterly unfair.

(And if you wanted any more evidence of how unfair it is - the assets which are now in scope of the notional income calculation are actually money I have been saving to pay off my interest only mortgage - the one on which my profit is being included for CM purposes. If I had chosen a repayment mortgage instead, there would be no such money to assess ! For the full story refer my other thread here https://www.dad.info/forum/child-maintenance/notional-income-variation/#post-124601)

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Topic starter Posted : 15/09/2021 9:10 pm
edpacket
(@edpacket)
Eminent Member Registered

i see. Your gross is before any pension. I would challenge based on 36020 as it is the only real way to make some sense of your pension situation. As you say the 36019 makes no sense for most people as there are so many variants (e.g. you started at 25 and stoped at 30 and restarted at 55)

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Posted : 15/09/2021 9:33 pm
Daddyup
(@Daddyup)
Honorable Member Registered

Hi

Reading through this thread and I recall your previous one, gosh things are so complicated. 

What I would be interested in knowing and potentially one for you to put forward, is that on what basis is the person at the CMS who is reviewing and making such decisions qualified to do so? These decisions impact upon so many financial aspects (mortgagw/house/pension/annuity/retirement income) that only a qualified financial advisor can really only break it all down and ascertain certain aspects eg if you are forced to reduce your pension payments the impact this will have on retirement income.. I would continue to raise appeals until all avenues are exhausted but also consider obtaining financial advice about your situation (appreciate the cost involved) so that you can present this to any appeals too.

 

Keep us updated, all the best. 

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Posted : 15/09/2021 10:59 pm
Will99
(@Will99)
Trusted Member Registered

@Daddyup 

Thanks. I do intend to carry on appealing and fighting for what I think is right and fair.

The inclusion of the full value of my pension contributions is what (together with the notional income) tips the new assessible income total over the +25% threshold from what was originally used, so getting that right is important for the current year calculation. What worries me is that a decision has been made on this, the decision re 25% has been reached, and I now have to reduce that new HIGHER value by 25% to trigger a recalculation back down again.

Eg. If original income = £1000, then new income of £250 will trigger a current year recalculation. However if that decision is taken (even erroneously) and the new current year income figure is £1,250, then I have to discount of £312.50 (not just the additional £250) to enable a recalculation back down again.

The CMS calculations are SO full of issues it's ridiculous. Take the HMRC changes to taxation for landlords - these days income tax relief on mortgage interest costs are capped at the basic rate. The way they do this is that the full value of the mortgage interest costs are included in the property's gross taxable profit, so they get taxed at the landlord's marginal rate, but then the landlord gets a tax rebate at basic rate. However this has an impact on CM liability if the landlord also pays that - and the full value of these mortgage interest costs are assessed for CM. CMS don't care about the intricacies of this they just see the gross taxable income and assess you on it. So despite not earning a penny more in 'real' profit, the landlord is hit with a significant increase in CM liability !

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Topic starter Posted : 15/09/2021 11:23 pm
edpacket
(@edpacket)
Eminent Member Registered

@Will99 Did they tell you why the reject your additional pension contribution? How long did they take to process the request? Are you paying CMS under the previous pension value in the meantime? Sorry for all the questions feel free to ignore.

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Posted : 16/09/2021 10:07 am
JGdad
(@jgdad)
Active Member Registered

@edpacket Will, really sorry to read your story mate, this is all so bloody mad, I get it if we were refusing to pay for our children, or putting the money into some crazy savings scheme, but this is for our retirement and the children will benefit from this as we get older and can assist them with their finances. The memory of seeing old people waiting for pension day and scrimping to survive, in most cases, should be a thing of the past, but it appears that the CMS actually want this. They cannot have a set of procedures and then refuse to work to them, there is case law and thank God for the freedom of information stuff on the internet, we can question their decision. Will on yours, it maybe a little more complex, but your end pension, still falls short of the percentage of current salary so fight them mate

 

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Posted : 16/09/2021 10:27 am
JGdad
(@jgdad)
Active Member Registered

@Daddyup I agree with Daddyup, particularly on the advice part, as the upper tribunal ruling in this matter, refers to many factors and professional pension advice is one of them. I would book a free appointment with Pension Wise, they are endorsed by the Government, will give you a full hour of advice, no selling and really helpful, this can go with your other reasons for the decision to be reversed

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Posted : 16/09/2021 10:31 am
Daddyup
(@Daddyup)
Honorable Member Registered

Prior to any appeals, you may even want to do a S. A. R in relation to yourself so that you can get an idea of everything they took into consideration before making a decision and see if they took a sufficient amount of time, involved any experts etc

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Posted : 16/09/2021 12:14 pm
JGdad
(@jgdad)
Active Member Registered

@Daddyup still cant believe we have to go through all this crap to spend our own money!!!!

 

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Posted : 16/09/2021 12:54 pm
Daddyup
(@Daddyup)
Honorable Member Registered

Out of curiosity, if we incur costs proving that the CMS made an incorrect/flawed decision, can we claim them back? 

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Posted : 16/09/2021 1:06 pm
Will99
(@Will99)
Trusted Member Registered
Posted by: @edpacket

@Will99 Did they tell you why the reject your additional pension contribution? How long did they take to process the request? Are you paying CMS under the previous pension value in the meantime? Sorry for all the questions feel free to ignore.

Their letter stated 'Furthermore, the additional pension contributions of £X that you made in the tax year ending 2020 have also been included (i.e. in the income figure used for the CM calculation), in light of your other existing pension provisions'. However I'm pretty sure that using the 36014 table they should only count the amount contributed that is over the allowable %, and using the 36020 table I'm pretty sure that most, if not all, of these contributions should be deemed allowable.

I was informed of the variation request on 15th July and they told of their decision on 15th September. I think a lot of this time was spent gathering information from various financial institutions and also my own representations. They did come back after my first submission to ask for more detail on one of my assets.

I am currently paying a CM amount that is based on my PAYE income plus my property income, and they want to add to that notional income and my additional pension contributions. Their initial verbal response to me was that they were not interested in my ISA funds for a notional income calculation because I had explained that they were solely a repayment vehicle for the interest-only mortgage on the property that I let out (and on which the profit is already included for CM calculations), but they then asked for more info on that and they have seemingly decided to include that in a notional income calculation, despite my representations that it is unfair to charge me on that purely because I chose to invest and pay interest only rather than get a repayment mortgage. Refer my other thread on this).

Posted by: @Daddyup

also consider obtaining financial advice about your situation

I can get a free initial (retirement) consultation through my union - maybe that will help justify my pension contributions

Posted by: @Daddyup

Prior to any appeals, you may even want to do a S. A. R in relation to yourself so that you can get an idea of everything they took into consideration

What is a S. A. R. ?

 

Thanks so much for your engagement and advice guys !

This post was modified 1 week ago by Will99
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Topic starter Posted : 16/09/2021 5:17 pm
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