Background to the PFA
The PFA pension is a pension where the Professional Football Association (PFA) makes a payment into the scheme regardless of whether the footballer contributes.
The PFA starts contributing once a professional contract is signed. The current contribution is £5,820 per annum and the pension is drawn in the same way as all existing pensions – 25% tax free cash and the remainder as an income via annuity or drawdown. The current retirement age for any footballer in the scheme who joined it after 5 April 2006 is 55.
The newly introduced regulations around the tapered annual allowance will have an impact on a number of footballers’ pensions as the annual allowance – the maximum tax relievable contribution that can be paid into a UK registered pension – for people earning above £240,000 will start to taper down to just £4,000 per annum once the total income reaches £312,000.
Before 5 April 2006 the PFA pension had a retirement age of 35, which was of huge benefit to footballers as this allowed them to draw their pension soon after retirement. As well as this there was enhanced tax-free cash allowing 100% of the cash section of the scheme to be taken tax free.
Cash section VS income section
The Professional Football pension scheme had a cash section and an income section with players being automatically entered into both. The cash section was funded by the transfer levy and the income section by players’ contributions.
Similar to the above, the cash section provided a level of benefit but this only continued to accrue if members contributed at least 3.75% of (capped) basic salary to the income section. A minimum level of benefit was also introduced from this time in that members will receive the equivalent of £1,000 for each year of contracted employment with a club, capped at £5,000.
- Any cash section benefit accrued prior to 6 April 2006 could still be taken as 100% tax free cash
- Any cash section benefit accrued from 6 April 2006 had to be pooled with the fund available from income section with 25% of the total then being allowed as tax-free cash
- The remaining benefit being taken as income
The retirement age remained as 35 for those who joined prior to 6 April 2006 but increased to 55 for those joining from that date.
PFA Pension Buddy Scheme
The normal retirement age is age 55 for members who joined the scheme after 5 April 2006 and, as stated above, 35 for members who joined the scheme before that date, unless a different date has been agreed individually with HMRC.
Buddy pension rules mean you can do a bulk transfer of two or more scheme members from the same scheme to a new (consolidated) scheme and any protected pension age (i.e. age 35 in this context) held in the original scheme can be retained in the new scheme following the transfer. This is on condition that the two members transfer from the original scheme to the same scheme at the same time.
Furthermore, a footballer who had contributed to another pension taken out after 5 April 2006 could transfer this pension to the new scheme after the buddy transfer and this would mean that the benefits accrued under the two transferring schemes would attract the protected pension age in the new scheme. The upshot would be that the new scheme would benefit from retaining the original retirement age of 35 held under the bulk transferred scheme. Similarly any contributions paid into the new scheme would also attract a protected pension age of 35 provided they were paid before any benefits were drawn from the new scheme. If the benefits were paid out first, however, the contributions paid would attract a retirement age of no earlier than 55.
Buddy transfer during lockdown
We recently carried out a buddy transfer for two longstanding footballers who became clients of mine around nine or ten years ago. This was when you could contribute £50,000 per annum into your pension and take advantage of carry forward. Carry forward is still available, but the £50,000 contribution limit was reduced to £40,000 in the 2014/15 tax year. For many clients who received bonuses from their club this allowed us to salary sacrifice part of the bonus into the pension to save on Income Tax and National Insurance for the player and also gave a National Insurance saving for the club.
For these clients a new SIPP was set up with the retirement age of 55 knowing we could enact a buddy transfer around their retirement age of 35. One of these clients has now retired from football and has bought the house of his dreams for his family for the future. There is work that needed to be done to the house and he needed to access the tax-free cash from both schemes at 35.
We have gone through the process of giving the advice – the subjects were two footballers with individual SIPPs and both pre-April 2006 PFA pension scheme members.
The advice was to set up a SIPP with a new provider; the PFA pension has to come across as a bulk buddy transfer and any additional pensions transferred in within the next 12 months will retain the new protected retirement age of 35.
This proved extremely valuable as my client needed the tax-free cash from the new scheme to complete the building works on his house.
At this time Covid took effect, as did lockdown. Within the PFA pension he held a property fund which was suspended. For the transfer this proved a major problem as we could not do a partial transfer as this would fall foul of the buddy transfer rules and they would lose their protected retirement age of 35. Waiting for the fund manager to lift the suspension was also a problem as the client needed to pay and finish the work on his house imminently.
The client and his family were really worried. The PFA Pension Trustees and administrators were extremely helpful: they wanted to support the client and were prepared to explore all avenues –including considering paying the value of the suspended fund based on the current value in advance of the suspension to help the client out.
The trustees spoke to the property fund administrators and they agreed to settle the cash amount for the client as he was retiring.
Overall this turned out to be a great result for the client through a stressful and testing period but thankfully they can receive the money and finish the work on their forever home.
For further information, please contact Adam Osper on 020 7936 7348 or email@example.com.
This article was previously published on Tilney prior to the launch of Evelyn Partners.