Pension payout from previous employment but still working

spiderq

I think I may need to see a financial advisor about this but wondered if anyone could suggest some research I could do myself.
I am a 56 yr old female teacher, been teaching for the last 21 yrs, before that I worked for a bank and my preserved pension is due to be paid when I am 60, approx £7k per year. This is likely to put my income into the higher tax bracket.
My question is- will I be better off reducing the number of hours I work ( go part-time) to avoid paying the higher tax rate. What is the best way to work out what my best options are?
Any help would be welcome.

Linton

spiderq wrote: »

I think I may need to see a financial advisor about this but wondered if anyone could suggest some research I could do myself.
I am a 56 yr old female teacher, been teaching for the last 21 yrs, before that I worked for a bank and my preserved pension is due to be paid when I am 60, approx £7k per year. This is likely to put my income into the higher tax bracket.
My question is- will I be better off reducing the number of hours I work ( go part-time) to avoid paying the higher tax rate. What is the best way to work out what my best options are?
Any help would be welcome.

Err no- the more you work the higher income you get as tax is always less than income.

To save tax you could always put the excess over the Higher Rate limit into a new pension.

CLAPTON

are you asking what you should do in 4 years time?

savageHK

Does your pension scheme allow you to defer taking your pension? If they do, they will increase it from the date you actually retire to compensate for the missed payments. It's worth asking the question.

spiderq

Yes, I mean in 4 years time ( I'm thinking about this now so I'm prepared). My retirement from teaching will be at 66 but I wanted to check what I would lose/ gain if I decided to reduce my permanent full-time contract ( in teaching) to a permanent part-time. How would I work out what I would lose from from teaching pension if I do that and whether that will be offset by the additional income I will get from my bank pension. I'm looking for a starting point in try to work this out myself as taking the pension on top of my salary will put me into the higher tax bracket.
I don't know if I can defer the Bank pension- I suppose I want to find out what all my options are before making any decisions.

kidmugsy

"...taking the pension on top of my salary will put me into the higher tax bracket": only if you let it; see Linton's last sentence.

jamesd

As Linton and kidmugsy have indicated a good approach can be paying the higher rate income into another pension. Then you'll get a 25% tax free lump sum from it and have the capital in the pension to produce ongoing income. This produces a tax saving but at the cost of not accumulating the income to produce a lump sum that some people would prefer.

Since you're already over 55 you could even take the lump sum each year and put the rest into income drawdown but not draw any income. This way you get the lump sum as soon as possible. Annually is probably too frequent even if all £7k was in higher rate since there's likely to be a cost of £75 or more to enter drawdown each time you do it.

The idea of reducing working hours for this reason does not seem to be worth pursuing, it's letting the tax have far too much influence on your actions.

jem16

spiderq wrote: »

Yes, I mean in 4 years time ( I'm thinking about this now so I'm prepared). My retirement from teaching will be at 66

Do you plan to work on till age 66 in teaching or are you assuming that you have to?

The proposed plans for the new pension scheme allows those within 10 years of retiral to retain their current final salary pension and retiral age of 60.

CLAPTON

I trust you understand that

a. only the (small) proportion of your total income over the 40% limit is taxed at that rate; anything below 42,475 is taxed at 20% (but see point b.)

b. currently, you pay 20% tax; 10.4% NI and 7% (?) pension on your teacher salary so your marginal deduction rate is 37.4% for every extra pound you earn

c. for your pension income, even if all was at 40% tax you would NOT pay NI or make any pension payments so your marginal rate of 40% is only 2.6% more than currently

d. you (we) don't know what the tax allowances and rates will be in 4 years time

Unless you really want to cut down your hours for other reasons, it would be pretty daft to do so, to avoid so little tax and have a smaller pension for your retirement

soperman

The other factor to consider is whether you take any of your Teachers pension and bank pension as a tax free cash lump sum. You are probably accruing the lump sum separately to your pension under the Teachers pension but this is unlikley to be the case under the bank pension. Nearer the time you can make an assessment of all the options including any mitigation of higher rate tax.

Please do not go part-time - this country needs all its experienced teachers in full-time work!!

spiderq

jem16 wrote: »

Do you plan to work on till age 66 in teaching or are you assuming that you have to?

The proposed plans for the new pension scheme allows those within 10 years of retiral to retain their current final salary pension and retiral age of 60.

I thought I was just outside the threshold for that as my birthday is in August and I think the cutoff point is earlier than that? Yes, I was assuming I would have no choice, I am the main earner in my household so cannot rely on anyone else's income.
That is one of the reasons that I am thinking about the possibility of going part-time ( at 60) probably down to 4 days IF I can check on the ramifications of doing this.