How do I enter a temporary or bridging pension? - UK

Q - My client has a final salary scheme where the employer provides a temporary pension until state pension age. How to I model this in Voyant?

A - Essentially, the software assumes that final salary pensions and pension annuities are for life and there is no mechanism to reduce these or step them down once they have commenced. This means that to have the option of receiving a pension for a predefined term, one must assume that it is not a pension annuity.

We suggest that you enter the Final Salary pension using the figures less the bridging amount and think of the bridging amount as a short term enhancement. Then add this bridging amount as either a deferred non-pension annuity starting at the same event as the final salary scheme, but stopping after a defined term or as Other Income starting at the same event as the final salary scheme, but stopping at an event in the future.  

Option 1

Enter the temporary pension as a non-pension annuity. When adding the annuity select non-pension, because you then have the option to specify a term. Note that one must enter some purely nominal value (£1 will suffice) as the purchase cost of the annuity - this 'Capital Element' will be returned as part of the total specified 'Payment', but will not be subject to tax (because it is 'return of capital').


Option 2

Alternatively, enter the pension income as Other Income which, again, will enable you to specify the period over which the pension payment is received. You will need to add an event to the timeline to end the bridging amount e.g. create an event at state pension age.

Just be aware that this payment will be treated by the system as 'self-assessment' income, with tax being paid annually-in-arrears (as opposed to PAYE for the final salary or annuity).