Q. I have just been issued with a mobile phone by my employer (not at my request) and am concerned it will end up costing me money as I believe I will have to pay tax on it. I don’t really need a mobile phone and feel my employer should pay any tax I will be charged. Can you let me know how to calculate the tax charge please.
A. Assuming your employer issues you with only one phone and the contact is between the employer and the mobile phone provider, the phone is exempt from tax and you will have nothing to pay for it.
Q. Are Annuities finished? I read in the papers about pension freedoms that are coming soon and wonder if they are?
A. The way you can draw pension benefits from age 55 is changing from 6 April 2015. Although you have been able to do Income Drawdown pensions for many years most providers have had quite high minimum fund requirements, meaning for those with smaller funds this has not been possible. With the average fund value at retirement being only around £34,000 for many people an annuity has been the only option. As from 6 April 2015 you will no longer have to buy an Annuity, but I still believe it will be appropriate for some people. For example, either those people who require a guaranteed level of income or require income and have a low tolerance to risk. In theses cases annuities still have a place in retirement planning. If you are approaching retirement, I recommend you contact an Independent Financial Adviser who specialises in pensions.
Q. I am a University Lecturer, and have recently been offered a promotion with effect from April. What effect will this have on my pension in the University Superannuation Scheme, which I have been in since 1995?
A. Your pension benefits at retirement are based on your final salary and your years of service in the scheme. You get 1/80th of your final salary as pension, with 3/80th as a tax-free lump sum, in most circumstances. An increase in salary will increase your pension proportionately. However, there may be a tax charge payable if your “Pension Input” increases above the limit for the year. Pension Input is measured by considering your benefits at the beginning of the scheme year (1st April for the USS), and comparing them to those at the end of the scheme year (31st March). Pension is multiplied by a factor of 16 and added to lump sum. The opening value is increased by the increase in annual CPI from the previous September (1.2%). You will go from 20 to 21 years of service over the year (5% increase), and the full effect of your pay increase will be felt in line with the scheme year. This means your Pension Input may breach the Annual Allowance, which is now £40,000, equivalent to an increase in pension of £2,105pa over inflation over the year. Any excess can be set against unused allowances from the previous three years. If there is still an excess, you are obliged to pay an annual allowance charge at your marginal rate of income tax. Fortunately, the USS is one of the more forward thinking schemes in that it has several options people in your position, for reducing the impact of the charge if there is still an issue. I would recommend speaking to your HR department and a Chartered Financial Planner with knowledge of the USS scheme.
If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.
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