The Hewlett-Packard Limited Retirement Benefits Plan

The HP Ltd Retirement Benefits Plan
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  • General information
  • State benefits
  • Limits and taxation
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  • Digital
  • Active
  • General information

Limits and taxation

The Plan is a registered scheme for HM Revenue & Customs’ (HMRC) purposes. As a registered scheme, it enjoys several tax advantages. Consequently, HMRC impose limits on the amount of pension savings you can make each year and build up over your working life.

It is your responsibility to ensure you monitor and understand how your pension savings may be affected by the allowances imposed by the HMRC.

Annual Allowance

The Annual Allowance limits the amount of tax privileges on a member’s ‘pension input’ each year. If the value of a member’s pension input exceeds the Annual Allowance, the excess will be subject to a tax charge. ‘Pension input’ includes:

  • The capital value of any benefit accrual in defined benefit pension schemes (such as this Plan). The capital value is calculated by multiplying the increase in the level of your pension entitlement during the tax year by a factor of 16, and;

  • Any other contributions to defined contribution schemes, such as Additional Voluntary Contributions (AVCs) or contributions to any other HMRC Registered Pension Scheme. This may include any pension arrangements that you contribute to on a private basis.

The Annual Allowance for the 2020/2021 tax year is £40,000. 

Tapered Annual Allowance

Since April 2014, the Annual Allowance has been set at £40,000 and will continue at this level for most individuals. However, from 6 April 2016, the Annual Allowance has been tapered for individuals with taxable income over £150,000. 

For every £2 over £150,000, the Annual Allowance will be reduced by £1, down to a minimum of £10,000.

Money Purchase Annual Allowance (MPAA)

If you have pension savings outside of the HP Plan and have taken advantage of any of the new pension flexibilities, for example income drawdown from a Defined Contribution (DC) pension plan, you will have a reduced Annual Allowance of £4,000 towards any DC pension savings (for example Additional Voluntary Contributions to the Plan). 

The MPAA only applies to contributions to DC arrangements and not defined benefit pension schemes. Your normal contributions to the HP Plan are therefore not impacted by the reduction in the Annual Allowance.

Lifetime Allowance

Your pension benefits are also subject to an overall Lifetime Allowance, which is the overall amount 
of pension savings that an individual can have at retirement without incurring a tax charge. The Lifetime Allowance for the 2020/21 tax year is £1,073 million and will increase annually in line with the Consumer Prices Index (CPI).

For defined benefit Plans the ‘value’ of the member’s pension is calculated by multiplying the initial annual pension by 20 and adding it to the pension commencement lump sum received. This would be added to the value of any other pension funds you have in addition to your HP Plan benefits to determine whether the Lifetime Allowance has been reached.

In practice, it is expected that few members of the Plan (if any) will reach the Lifetime Allowance, but you should take independent financial advice if you believe that you may be affected by it.

If the Lifetime Allowance is exceeded then excess benefits are subject to the Lifetime Allowance Charge. This would currently mean a tax charge of 25% if the benefits are taken as additional pension or a tax charge of 55% if the benefits are taken as a lump sum.

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Expression of Wish Forms and letters – an update

In response to our recent letter titled ‘Who do you want to receive any benefits payable from the Plan?’ we have received several very good questions from members. We thought to share the responses more widely and have done so by writing again to all members. You can also see a copy of this letter by visiting the News section of this website.