I have a job offer from a public sector organisation and have agreed the salary for the role. It is a permanent job and entitles me to join the civil service pension. 

I have for an extended period worked in the private sector and diligently set aside money in a stakeholder pension scheme. I have opted to apply for Fixed Protection 2016 which increases my lifetime allowance to £1.25 million but also means I can no longer contribute to a pension.

The value of the employer contribution at my new role will be approximately £10,000 per year (as I am 57 and the salary is high), and so with likely another eight years working the total value could exceed £100,000 before I retire.

In previous private enterprise roles, the employer contribution was paid instead as taxable income. The public sector organisation has stakeholder pension provision but are indicating that they cannot pay the employer contribution in the same way as private enterprise.

I want to understand if there is any way I could receive this pension within the current rules. Could the employer contribution be paid to my wife?

Ross

Tom Selby, AJ Bell Senior Analyst says:

The lifetime allowance is currently set at £1,073,100 and will be frozen at this level up to and including 2025/26. If an individual takes benefits which are in excess of the lifetime allowance then they have to pay a lifetime allowance charge on the excess amount.

Since 2006 a range of lifetime allowance ‘protections’ have been introduced to ensure cuts to the headline figure didn’t unfairly penalise savers.

Two of those protections – Fixed Protection 2016 and Individual Protection 2016 – are still open for applications, although there are strings attached with both.

Fixed Protection 2016 allows you to lock in a £1.25 million lifetime allowance but prevents you from making further contributions or setting up new arrangements from 6 April 2016. If you do, the protection is void.

Individual Protection 2016, on the other hand, protects the value of your fund at 5 April 2016, provided that fund was worth more than £1 million and less than £1.25 million, and the person doesn’t hold Primary Protection or Individual Protection 2014 (two older forms of lifetime allowance protection).

Crucially, you can continue making contributions to your pension if you have Individual Protection 2016. While you will be subject to a lifetime allowance tax charge on any excess above your protected amount, it is possible this will be worthwhile given the value of your employer contribution.

You can read more about how lifetime allowance protections work here. 

You mention your new employer is not prepared to offer you an alternative form of remuneration in lieu of your pension contributions. You may therefore have a decision to make about whether to break Fixed Protection, and instead take out Individual Protection 2016 and accept your new employer’s pension contributions.

Whether you do or not will depend upon many factors, including the benefits available from the scheme and what they are worth to you, the value of any Individual Protection, what lifetime allowance charge you may have to pay, your tax status at retirement, and how long you intend to continue working with your new employer.

I’d strongly recommend discussing your situation with a regulated financial adviser before making any decisions as this is a complicated affair.

It could be possible, in theory, for an employer contribution to be paid into a spouse’s pension as part of someone’s remuneration package. An arrangement would be at the discretion of the employer, and it is unlikely that the individual could receive tax relief. But this option seems unlikely in your situation if your new employer is unwilling to pay the value of the pension contributions as salary.

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Please note, we only provide information and we do not provide financial advice. If you’re unsure please consult a suitably qualified financial adviser. We cannot comment on individual investment portfolios.

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