OMERS Pension Guide

Example – Member A Fully Impacted by the Tapered Annual Allowance

➢ This member has an annual salary of £250,000. They also receive rental income of £15,000 per year and interest of £10,000 per year. When STIP allocations are added, the income exceeds £360,000. ➢ The employer contribution rate is 10% of Basic Pensionable pay. ➢ The member has invested heavily towards their pension over recent years and has no carry forward allowance available. ➢ The total income means that they are fully impacted by the TAA. The maximum annual contribution that can be efficiently paid into their pension is £10,000. With standard pension membership, they would be entitled to routine employer contributions of £25,000 (£250,000 x 10%). If the standard matched 10% employee pension contribution is also included, the member would exceed their TAA by an even greater amount. ➢ The member therefore applies for the CIL allowance (instead of standard pension membership), to ensure that they do not face an unwanted tax charge on any excess pension contributions. This works as follows: • Ongoing employer pension contributions of £10,000 per year (£833.33 per month). • Zero personal pension contributions (the main objective is to optimise the employer contributions). • Pre-deduction CIL allowance of £15,000 per year (£25,000 entitlement - £10,000 continuing pension contributions) • Corporate National Insurance is not payable on employer Pension contributions. It is, however, payable on CIL allowance since they are considered ‘cash’ payments. • Consequently, this needs to be deducted from the CIL allowance as follows: • (£15,000/115%) = £13,043 • This CIL allowance of £13,043 per year (£1,086.92 per month) is added to the member’s pay. This CIL allowance will be subject to income tax and personal National Insurance in the same way as salary. ➢ OMERS provide the same level of member entitlement, just in the form of CIL and employer pension contributions. ➢ The member is advantaged that they have the CIL allowance now (albeit less tax and personal NI). In contrast, if they continued with standard pension membership, they would have to pay 45% tax on the excess contribution over the TAA in the very short term plus marginal rate income tax on the eventual pension income when they reach their pension withdrawal age.

29