Pension Contribution Refund

B

Bosco

Guest
Someone told me that if you get the pension contributions that you have made (defined contribution scheme) paid out when you leave a job that they are taxed at a lower rate than the marginal (42%) rate of tax - taxed at 30%.

Does anyone know if this is the case. If it was then it would be a loophole because when you start a new job you could put the money in and get 42% relief !!
 
Yes & No - In fact, the refund rate is 25%, so the potential gain is larger. However, the 'catch' is that you can only get a refund if you have been a member of the scheme for less than the 'vesting period', which is no more than two years. Some pension schemes have no vesting period, so contributions are immediately vested and won't be refunded at all.

So the loophole exists only if you are 100% certain that you will be staying with that employer for less than the vesting period.
 
Pension refund

Rainyday

I think (and maybe someone will confirm) that the rate was reduced to 20% in the last budget.
 
Refund of Contributions

Yes, the tax deduction is 20% of the refund of your personal contributions and you lose the benefit of any employer contribution. A refund option is only available
if the employee has less than 2 years service. Otherwise he/she must take a deferred benefit on leaving service.
 
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