actuarial reduction buy out

johntstone

I am 53 in civil service classic pension & have been offered voluntary exit.

My compensation is £90000 & I understand amount over £30000 would be taxed at my highest rate (40%).

Buy out figure for unreduced pension is £110000. If I use my compensation & £20000 savings what are tax implications?

My salary is £50000 so I will have paid in more than that. My pension at 60 would be £16600, reduced to £12000 taken now. If I buy out reduction have I increased pension worth by more than permitted level?

I have a week to return forms which would be bad enough but I go away tomorrow am so frantic. Employer & CSP predictably unhelpful.

I can either use the compensation divided between 7 years or buy out. Which is best tax wise?

Advice much appreciated

xylophone

http://www.civilservice.gov.uk/wp-content/uploads/2011/09/CSCS_Voluntary_exit_guidance_for_staff_tcm6-38086.pdf

Does anything here throw any light?

kidmugsy

johntstone wrote: »

I have a week to return forms which would be bad enough but I go away tomorrow am so frantic.

What rotten notice. Still, with sums that size involved I'd be tempted not to go away and to devote a week to sorting it out.

uknick

OP

I left the civil service 2 years ago under same conditions. If I recall I also had only a couple of weeks to make a decision after I was accepted for VER, but I was aware of the numbers some time before hand. Having said that, I did have a number of people ask me for advice at the time as to what it all meant. They, and I, also found the union and the HR "experts" as much use as a chocolate teapot

First a question, has the VER scheme changed so that the Department no longer buys out any shortfall if you take your pension early? For example, I needed £130k to buy out my pension actuarial reduction. My redundancy payment was £100k; my department covered the difference of £30k. Therefore I did not have to pay anything. I saw this as free money.

What should you do? We can't answer that as it's dependant on so many personal things. But as said, for such a life changing decision, I think I'd postpone any plans to go away, or at the very least spend the proper amount of time on this. But for what it's worth, this is what I did.

Being an accountant (sad that it may be ), I set up a cash flow projection up to my state pension age to see if I should take pension or redundancy. I assumed not working again, all the tax implications on this assumption and how much I would need to sustain a lifestyle I was comfortable with. One thing I did forget in my calculation, the pension only starts to get CPI'd after your 55th birthday.

I took the pension. Two main reasons for this.

First, it guaranteed me income. Second, I know people who are unemployed with significant savings. It is a right pain for them with regard to getting credit and insurance renewals.

Good luck with your decision