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Pension contributions - what is deemed a diversion of income ?

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Posts: 790
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(@Daddyup)
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Also depending how you make your contributions there could be a time lag too. If employer deductions these will show on payslip and easy to work out gross income and so CMS can factor in sooner. If private pension contributions then you need to wait for statement from pension provider to show contributions and different providers have different frequency for producing. 

Also remember, if private pension your contribution is net of tax and so your statement would need to show the contribution you have made plus and tax rebate which the CMS need to add together and deduct from your gross income. If this makes sense? I've heard many stories where paying parent struggles to get CMS to understand this and have had to appeal or wait for an annual statement showing the contributions and tax rebate or get pension provider to send a bespoke letter (sometimes at cost)...

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(@Will99)
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@Daddyup Thanks for all help on this. For information, my 'regular' contributions are to my workplace defined benefit pension and show on my payslips, and my gross taxable income on my P60 is after such costs. My 'additional' contributions are via salary sacrifice and to the same pension provider (but to a separate defined contribution scheme) - so these are also taken account of at source and impact my taxable income on my P60 too. So hopefully none of the timing issues you refer to as all contributions are made from pre-tax income and via my workplace payroll.

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(@Will99)
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Actually I note that the figures in the table relate to when the NRP started making contributions. So whilst it says 45 to 70 % for someone aged 55 and over, if they have been making contributions since they were - say - age 40, then it seems that 18 to 25 % is the guideline figure. 

However these are guideline figures with a lot of scope for taking other factors in to consideration, so I hope that the CMS will judge my planned contributions to be reasonable given other factors such as my inconsistent provision in the past and desire to 'catch up', and current projection for my income in retirement.

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(@hardlife)
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@Daddyup I’m in the same boat it’s been 20 weeks now a the CMS have given me conflicting advice on this 

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(@jgdad)
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Hi Will, how did you get on with this, really interested, as I am 55 in October and looking to retire no later than 60, mainly due to ill health. I a aware of the rationale behind the pension contributions and there is case law to support an older person, who has previously not paid contributions and needing to prepare for retirement. I started paying 45% from 53 and am looking to increase to 60% when I hit 55. Common sense is clear that this should be acceptable and not a diversion of income, but just wondered how you got on. Would really appreciate any other members experience

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(@Will99)
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Funnily enough I just received a decision this morning from the CMS on this.

They were actually making a decision on a notional income variation applied for by my ex (refer https://www.dad.info/forum/child-maintenance/notional-income-variation/#post-124601), however as I provided full financial disclosure as part of that - including pension provision - they have also made the decision to assess me on the full value of my additional pension contributions 'due to my existing pension provision'. These are contributions I make in addition to the standard workplace pension I am a member of.

So the CMS have made this decision despite :-

1. A previous request by my ex- for a 'diversion of income' variation on these grounds having been rejected on the grounds that these contributions were 'not deemed excessive'. I presume this decision was made by reference to the 'table of acceptable pension contributions' the CMS use (referenced earlier in this thread).

2. Including ALL my pension provision I estimate that I will get on retirement an annual pension of approximately £23K (this is without taking any tax free lump sum)

3. My current age of 57.

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(@jgdad)
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@Will99 Thanks Will, so reading this, would appear good news for you mate, sorry if not reading correctly. So they allowed you to make the extra pension contribution you were suggesting, in line with the FSA chart?. I am not looking to get away from paying for my son, who the ex has alienated from me, but being 55 and needing a pension, I will need to make the increase to 60%. Thanks mate in advance

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(@Will99)
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@jgdad 

I'm afraid you do read that incorrectly. The CMS have assessed me on the full value of my additional pension contributions, i.e. they have not allowed any of that sum to be exempt from the Child Maintenance calculation.

@edpacket

For the year in question, my additional pension contributions were a shade under 25% of my gross taxable income (that taxable income figure being the figure AFTER after I made these contributions). I.e. so without any such additional contributions I would have earned £X. I made additional contributions of 20% of £X. 

I am 57 years old and I know that the amount of pension contributions that is deemed acceptable or 'allowable' increases the nearer you are to retirement (as per the table that the CMS use). Indeed these contributions have previously been deemed 'not excessive' by a previous 'diversion of income' MR my ex raised. However as part of the 'notional income' variation she subsequently raised I provided full financial disclosure, including details of all other pension funds I have accrued to date, including some funds that I invested in decades ago when I was an IT contractor and which have grown in the interim. So I imagine consideration of ALL my pension provision (*) has now led the CMS to deem that my current contributions are wholly 'excessive' and a diversion of income whereas previously they were considered wholly acceptable.

(*) Taking account of ALL my pension provision, my defined benefit and my defined contribution funds, I estimate that I could get a retirement income of approx £23k in retirement in a few years time. Not an insignificant amount of course, but I would not exactly call it excessive either, and certainly not at the level where any attempt to enhance this should be determined as a diversion of income.

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(@jgdad)
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@Will99 Sorry mate, I did not see this reply, this is a [censored] scandal, you need to refer them to the acceptable percentage of final pension, against your present salary. I will try and find the original

 

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(@edpacket)
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@Will99 Could I ask what percentage are you contributing? 

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@edpacket Hi Will, sorry to add some background, I am 54, will be 55 next month. 2 years back, I suffered a near fatal seizure, went back to work, but will not work past 60. So looked into the upper case tribunal, which refers to "allowable pension contributions" and not just the FSA chart, but other factors, like health, when I expect to work to and advice received. So started to pay 45%, in line with the chart, never paid a contribution before, but based on this, I will still have a pension that falls massively short of the 50% the CMS chart states acceptable, as a percentage of your salary for pension. On this basis, when I get to 55, i need to increase to 60%, not the 70% the chart states, but will still fall short of the 50% of current salary and wondered how CMS went about actually using the full list detailed on a case workers process (freedom of information). Cheers in advance, these groups are a life saver

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(@edpacket)
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@jgdad Could you clarify this phrase? I will still have a pension that falls massively short of the 50% the CMS chart states acceptable, as a percentage of your salary for pension. I don't follow.

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@edpacket sorry mate, there is another measure that they use, which is an acceptable level of your present salary, when you retire, £50K plus is up to 50% of your salary. So I tick all the boxes to pay more due to age, health and when I expect to retire. When 55, next month, even increasing to 60%, I will still fall short, based on the government backed advisory service, of circa 25% of the 50%. I cannot see that they can refuse the increase, based on this, but you never know. thanks as ever for the assistance mate

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(@edpacket)
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@jgdad I remember now. Do you have a link for the document? I am going to retire with 10% of my salart 🥺

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(@Will99)
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@jgdad @edpacket 

Yes please I would like to see that 50% rule. Because as it stands I too am projected to retire on less than 50% of my current salary (making a reasonable estimate of annuity rates) - hence given that I cannot see how the CMS can argue that my current pension contributions are excessive and should be included in the assessment for child maintenance calculation.

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@Will99 Hi will, so they said your contributions were too high?, how come, I thought at 57 you were well within the limits? I am trying to load the document, but it was a freedom of information request. The case worker also needs to refer to this. Less than £9,500 = 80%, £9,500 - £17,499 = 70%, £17,500 - £24,999 = 67%, £25,000 - £49,999 = 60% and £50,00 plus = 50%. They take the annual statement and the projected final retirement figure that your provider shows on the annual statement and it is the difference that is taken as potentially diverting income. So NRP gross income is £30,000 the annual statement shows a projected pension of £25,000 and the acceptable number at 60% is £18,000, then the difference could be treated as diverted income. If the case worker is unable to make a decision, they need to refer to a team leader.

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(@Will99)
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@jgdad 

Earlier on in this thread there is a link to the response to the FOI request, which gives acceptable levels of pension contribution depending on age

https://www.whatdotheyknow.com/request/cms_maximum_pension_allowance_ca

(first attachment at that link)

As you can see the acceptable level is 45% to 70% for someone over age 55 like myself. So my 25% current contributions is well below this. However according to the table this is the age that contributions STARTED, and I have made pension contributions previously which begs the question - how do they work out what is an acceptable level where contributions have previously been made, expecially when those contributions may have been made inconsistently over the many years ?

This is where it would seem to make much more sense that the 50% rule you refer to (other figures quoted above) is used. I currently earn over £50k so the threshold of acceptability on the figures you quote would be 50%. My current projected retirement income is £23k, so it would seem that even on this measure my contributions should be deemed acceptable. I wasn't aware of this sliding scale you refer to - and being able to quote it back to the CMS may help me a great deal !

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@edpacket 

That's great thanks for that.

Having looked at the relevant section I am still left wondering what 'gross income' means.

Eg. say for illustration purposes that I earn £50k per year without making any additional pension contributions and I have a projected retirement income of £23k. In order to boost my retirement income I chose to make additional pension contributions of £12k in the latest tax year - which would mean in that particular year my gross income was £38k.

A. If I use the £50k income figure the threshold value for retirement income is 50% x £50k = £25k. I.e. I am ok as my projected retirement income is less than this at £23k

B. However if I use the £38k income figure the threshold value is 60% x £38k = £22.8k. So here because my projected £23k retirement income breaches the threshold value I may be liable for the difference (albeit only £200) to be used as additional income in the CMS calculation.

I expect that B is the rule that applies

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(@jgdad)
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@Will99 Hi, no I do not read it like that, you could be making different contributions each year, so it would be a forever moving scale. My understanding is your gross salary is say £50K, regardless of your present pension contributions, that is the salary that you have the ability reach 50% of. My meeting with the pension advisor, he explained, that you need to be able to meet a percentage of your salary, not salary less pension contributions, if that were the case, they would be taking other things off, car finance etc. The annual statement for you pension, will show the assumed payout, that is a percentage of your current salary. The case law is also there, age etc, is a major factor, as are other things, the CMS need to take into account. I would challenge this 

 

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  • @Will99 what do you mean with additional pension contributions? 
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Posted by: @edpacket
  • @Will99 what do you mean with additional pension contributions? 

I am a member of my current employer's pension scheme which both my employer and I make contributions to (my contribution coming out of my gross remuneration) - the level of these contributions is fixed as stated in my contract of employment. My gross salary for tax is reduced by my contributions. This is a defined benefit pension scheme so I know precisely what my retirement income will be from this. This has been in place for the entire 18 years that I have been employed at my current employer.

In addition, I also have the opportunity to make Additional Voluntary Contributions (AVCs) if I so wish, which are also deducted from my gross remuneration at source in my payroll, so these also reduce my gross taxable income. These contributions go in to a 'defined contribution' scheme which is separate from the defined benefit one I mention above. So these contributions go in to a pot of money which I can use at retirement to eg. buy an annuity. I have only recently started making these AVCs, in an effort to boost my retirement income as I approach retirement. 

This is where it all gets a bit complicated - I have a property which I let out and now receive an income from. I have rented this property out for some years but it has only recently started to make a taxable profit and it was always my intention to plough this profit (when it materialised) in to my pension rather than have it taxed as additional income today. So I achieve this via my AVCs :- broadly speaking the AVCs I make offset the profit I get from my property. The AVCs reduce my earned income, and the property profit is 'unearned income' which is included in the CM assessment - the overall impact being that my gross taxable income has remained broadly the same as before my property started making a profit.

The AVCs have already been deemed as 'not excessive' by an earlier consideration of a 'diversion of income' variation requested by my ex, however as part of a subsequent 'notional income' variation request I made full financial disclosure of ALL my assets, including some other (defined contribution) pension funds which have been lying around untouched for decades and which were as a result of prior work as an IT contractor (i.e. with no employer provided pension). So the CMS didn't know about these funds in the earlier 'diversion of income' variation request. 

So the CMS have decided to include the full value of these AVCs - depsite the fact that they were earlier deemed 'not excessive' in the diversion of income variation request, and despite the fact that my TOTAL contributions are well below the allowable levels in the FSA table which is para 36014 at the link below (though it has to be said that that table is not very helpful when it refers to the date that contributions STARTED, and that throughout my working life I have had a very mixed pattern of pension contributions, some considerable time not making any contributions at all). Also despite the fact that (by my own calculations) my TOTAL retirement income from ALL sources is at or near the threshold given in parapraph 36020 of the document that jgdad mentioned and edpacket provided a link to :-

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1012626/volume-3-variations.pdf

I do note in the same document :-

36019 The DM should initially refer to the FSA`s guidelines (see paragraph 36014) with the Pension
Commission guidelines (see paragraph 36020) to be used as an alternative source in borderline and
complex cases, or cases where the NRP or PWC disputes the initial decision.

So it seems that I should at least be able to challenge the decision and request the CMS follows this document - and uses the table in para 36020.

It is SO draining and stressful. I actually offered my ex- to pay 50% of ALL childcare costs specifically to avoid going the CMS route (we each earned similar sums) but in the main to retain as big a role a father post-separation that I could. So this all seems so utterly unfair.

(And if you wanted any more evidence of how unfair it is - the assets which are now in scope of the notional income calculation are actually money I have been saving to pay off my interest only mortgage - the one on which my profit is being included for CM purposes. If I had chosen a repayment mortgage instead, there would be no such money to assess ! For the full story refer my other thread here https://www.dad.info/forum/child-maintenance/notional-income-variation/#post-124601)

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(@edpacket)
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i see. Your gross is before any pension. I would challenge based on 36020 as it is the only real way to make some sense of your pension situation. As you say the 36019 makes no sense for most people as there are so many variants (e.g. you started at 25 and stoped at 30 and restarted at 55)

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(@Daddyup)
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Hi

Reading through this thread and I recall your previous one, gosh things are so complicated. 

What I would be interested in knowing and potentially one for you to put forward, is that on what basis is the person at the CMS who is reviewing and making such decisions qualified to do so? These decisions impact upon so many financial aspects (mortgagw/house/pension/annuity/retirement income) that only a qualified financial advisor can really only break it all down and ascertain certain aspects eg if you are forced to reduce your pension payments the impact this will have on retirement income.. I would continue to raise appeals until all avenues are exhausted but also consider obtaining financial advice about your situation (appreciate the cost involved) so that you can present this to any appeals too.

 

Keep us updated, all the best. 

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(@Will99)
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@Daddyup 

Thanks. I do intend to carry on appealing and fighting for what I think is right and fair.

The inclusion of the full value of my pension contributions is what (together with the notional income) tips the new assessible income total over the +25% threshold from what was originally used, so getting that right is important for the current year calculation. What worries me is that a decision has been made on this, the decision re 25% has been reached, and I now have to reduce that new HIGHER value by 25% to trigger a recalculation back down again.

Eg. If original income = £1000, then new income of £250 will trigger a current year recalculation. However if that decision is taken (even erroneously) and the new current year income figure is £1,250, then I have to discount of £312.50 (not just the additional £250) to enable a recalculation back down again.

The CMS calculations are SO full of issues it's ridiculous. Take the HMRC changes to taxation for landlords - these days income tax relief on mortgage interest costs are capped at the basic rate. The way they do this is that the full value of the mortgage interest costs are included in the property's gross taxable profit, so they get taxed at the landlord's marginal rate, but then the landlord gets a tax rebate at basic rate. However this has an impact on CM liability if the landlord also pays that - and the full value of these mortgage interest costs are assessed for CM. CMS don't care about the intricacies of this they just see the gross taxable income and assess you on it. So despite not earning a penny more in 'real' profit, the landlord is hit with a significant increase in CM liability !

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(@edpacket)
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@Will99 Did they tell you why the reject your additional pension contribution? How long did they take to process the request? Are you paying CMS under the previous pension value in the meantime? Sorry for all the questions feel free to ignore.

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(@jgdad)
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@edpacket Will, really sorry to read your story mate, this is all so [censored] mad, I get it if we were refusing to pay for our children, or putting the money into some crazy savings scheme, but this is for our retirement and the children will benefit from this as we get older and can assist them with their finances. The memory of seeing old people waiting for pension day and scrimping to survive, in most cases, should be a thing of the past, but it appears that the CMS actually want this. They cannot have a set of procedures and then refuse to work to them, there is case law and thank God for the freedom of information stuff on the internet, we can question their decision. Will on yours, it maybe a little more complex, but your end pension, still falls short of the percentage of current salary so fight them mate

 

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Posted by: @edpacket

@Will99 Did they tell you why the reject your additional pension contribution? How long did they take to process the request? Are you paying CMS under the previous pension value in the meantime? Sorry for all the questions feel free to ignore.

Their letter stated 'Furthermore, the additional pension contributions of £X that you made in the tax year ending 2020 have also been included (i.e. in the income figure used for the CM calculation), in light of your other existing pension provisions'. However I'm pretty sure that using the 36014 table they should only count the amount contributed that is over the allowable %, and using the 36020 table I'm pretty sure that most, if not all, of these contributions should be deemed allowable.

I was informed of the variation request on 15th July and they told of their decision on 15th September. I think a lot of this time was spent gathering information from various financial institutions and also my own representations. They did come back after my first submission to ask for more detail on one of my assets.

I am currently paying a CM amount that is based on my PAYE income plus my property income, and they want to add to that notional income and my additional pension contributions. Their initial verbal response to me was that they were not interested in my ISA funds for a notional income calculation because I had explained that they were solely a repayment vehicle for the interest-only mortgage on the property that I let out (and on which the profit is already included for CM calculations), but they then asked for more info on that and they have seemingly decided to include that in a notional income calculation, despite my representations that it is unfair to charge me on that purely because I chose to invest and pay interest only rather than get a repayment mortgage. Refer my other thread on this).

Posted by: @Daddyup

also consider obtaining financial advice about your situation

I can get a free initial (retirement) consultation through my union - maybe that will help justify my pension contributions

Posted by: @Daddyup

Prior to any appeals, you may even want to do a S. A. R in relation to yourself so that you can get an idea of everything they took into consideration

What is a S. A. R. ?

 

Thanks so much for your engagement and advice guys !

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(@Will99)
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By the way - my ex actually works for the CMS ! Or did - she is recently retired.

I am reassured that cases involving CMS staff are dealt with by a secure team isolated from other CMS staff. However I for one wasn't even aware that there was a notional income variation, so I think my ex was undoubtedly in an advantageous position through her employment to know what can and can't be claimed, and how it all works.

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(@jgdad)
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@Daddyup I agree with Daddyup, particularly on the advice part, as the upper tribunal ruling in this matter, refers to many factors and professional pension advice is one of them. I would book a free appointment with Pension Wise, they are endorsed by the Government, will give you a full hour of advice, no selling and really helpful, this can go with your other reasons for the decision to be reversed

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