NHS Pension Query..

ipri

Hi....I will be retiring next May.....Happily,I will recieve an annual pension of about £48,000.....I am allowed to commute some of this to increase my lump sum....at 12 to 1 ratio...so I could take £1000 less pension and increase lump sum by £12,000.

If I take £48K...after Personal allow. is removed I'm still paying higher rate tax by over £4000....unless the tax bands are changed before I retire...who would advise what?? many thanks.Ian

EdInvestor

Take a bigger lump sum to bring yourself below the higher rate band.

ipri

Thanks.....what if the tax bands change unfavorably later?? ian

also...I cant work out the sums re. your suggestion...

jem16

ipri wrote: »

Thanks.....what if the tax bands change unfavorably later?? ian

Not much you can do about it apart from giving yourself a bit of a leeway now by taking a higher lump sum.

also...I cant work out the sums re. your suggestion...

If you want to reduce your pension by £4,000 then take a lump sum of £48,000 ( i.e. multiply by 12)

To give yourself some leeway reduce your pension by £8,000 and take a £96,000 lump sum.

ipri

Thanks again....I have done a little calculation....If I commute enough pension to bring my income below 40%..my monthly income drops by just over £200....This would represent a loss every month for my entire life!...I also calc that if the £49K generated by this would need to be getting about 5% net in interest to make this shortfall up....It doesnt seem so attractive?? ian

DominicBaldwin

Ian

I deal with a large number of clients that have an NHS pension and I have some thoughts based on this experience.

A couple of things to bear in mind are that the 12:1 commutation factor is not particularly good value for money when you consider current annuity rates, and the fact that the pension from the NHS Pension Scheme will increase in line with the changes in the Retail Prices Index. Assuming that you are in reasonably good health, then it will only take a few years for the difference in the full pension and reduced pension, after tax, to overtake the pension commencement lump sum taken at outset. Most people tend to underestimate their own life expectancy and this can have serious ramifications later on in life.

Hope this helps.

Dominic

jem16

ipri wrote: »

Thanks again....I have done a little calculation....If I commute enough pension to bring my income below 40%..my monthly income drops by just over £200....This would represent a loss every month for my entire life!...I also calc that if the £49K generated by this would need to be getting about 5% net in interest to make this shortfall up....It doesnt seem so attractive?? ian

No the 12:1 commutation rate isn's attractive.

I think what you need to decide is whether you need/prefer the income or a lump sum.