Retirement v Redundancy

Gilman

I have been offered either early reirement (i'm 51 years Old) and have worked over 20 years in the NHS
just wanted to find out the estiamate figure £31k lump sum along with an annual pension salary ....do i pay tax on the lump sum offered?
redundacy offered £70K what are the tax payment on this?? will it the tax% be.....advice will be greatly appreciated.

xylophone

http://www.hmrc.gov.uk/individuals/redundancy-ee.htm

offered either early reirement

On business efficiency grounds? http://www.nhsbsa.nhs.uk/Pensions/2686.aspx

The links might help - the Pension Commencement Lump Sum should be tax free - have you consulted your union rep?

kidmugsy

Usually the pension lump sum is tax-free, and the first £30k of a redundancy payoff is tax-free. You'd want to check. Many people would contribute part of the redundancy money to a new pension to avoid 40% tax on it. You could start drawing down on that new pension at age 55.

atush

so are you being offered your pension , now at 51 unreduced if you take that option? Are they adding years to your service too? That is an extremely good idea to take it if either of these apply.

If it is just allowing you to retire early, and still reducing your pension for taking it early, not so good.

Gilman

Will consult my union rep as I'm still unsure. I've now been told the quote given to me is only 18 years service .....there are a missing 6 years that they can't confirm ....I haven't got payslips for 25 yrs ago ....so not sure what the offer will be!

jamesd

Try phoning the Contracted Out Pensions Helpline. They will be able to tell you which scheme was getting contracted out deductions for every year that you were contracted out. If they say TPS then your missing year problem is well on the way to being solved. Have note taking facilities so they don't need to go through it more than once, it might be a long list.

jem16

Gilman wrote: »

I've now been told the quote given to me is only 18 years service .....there are a missing 6 years that they can't confirm ....I haven't got payslips for 25 yrs ago ....so not sure what the offer will be!

Did you work part time at any time? If so that would reduce the amount of pensionable service.

uknick

Gilman

I took a voluntary exit from the civil service last year. I chose the option of early retirement as, at that time any redundancy payment money was used to buy out the actuarial reduction for taking my pension 10 years early.

I decided to take the retirement because I thought regular income was better than living off a lump sum. In my calculations to take the exit package I made the assumption I wouldn't walk into another job immediately.

One thing I forgot in my calculations was that the pension is not increased in line with CPI until I reach 55.

With regard to the lost years, have you had continuous service with the NHS, or another public department, for that 25 years, or did you take a break?

If it is continuous then your employer has to correct it. I had 21 years continuous service in total but this was with 3 departments. My initial offer omitted the first 8 years service as the person dealing with the transfer in messed it up. Luckily, I had kept the written agreement to transfer the pension from 13 years before and the pension was adjusted.

With regard to your questions, as with anything in the public sector, it's not easy to understand. I found that the staff dealing with the exits were poorly trained with regard to what was being offered. I had a number of people ask me for advice on what the scheme offered and all the various options. Some union reps, definitely not all, were OK on the basics but could not help with anything beyond this.

Regarding tax implications, as said the first £30k of any redundancy payment is tax free. But, the remainder will be taxed at the marginal rate. By this I mean, if your sum is £70k in total most of the remaining £40k is taxed at 45%. This is because the payroll system will assume it is a "normal" monthly payment. Whilst the overpayment of tax is a pain it can be recovered by writing to the HMRC.

The decision you choose can only be based on where you see yourself in the next few years. If you think you will walk into another job straight away then it might be better to have a lump sum in the bank for a rainy day. But, if you think finding work will be hard, a regular income does pay the mortgage/rent and avoids you having to declare being unemployed for things such as car insurance. My experience is that car insurers increase premiums significantly if you are unemployed.

Gilman

Hi UKnick
Thank you for your very helpful reply; I have been in continuious service, although various departments in the health service, i have contacted NHS Pensions so that they can confirm my entry date; i think i may have "opted out" for a year as this was the advice at the time ...i was talked into obtaining my own pension plan. I re-entered into the NHS as my financial advisor at the time realised the NHS was the best option!.
I was also thinking of the safe option and go for early retirement but was not sure if the lump sum quoted of £31k was taxable also the annual salary payment of £11k ...how was i going to survive???
i have also asvised i can work up to 16 hours per week....
looking at the redundancy option ....a 45% tax payment is a surprise too

Gilman

jem16 wrote: »

Did you work part time at any time? If so that would reduce the amount of pensionable service.

No i worked full time .....

margaretclare

Sit down with your union rep and do the sums. https://www.gov.uk/calculate-your-redundancy-pay

You get a week's final salary for every complete year worked, but over a certain age (may be 50, not sure) you get more.

It's a while since this happened to me. I was made redundant from the NHS in 1992, coincidental with widowhood. Not very nice. Commiserations.