Tax on nhs pension

pollyanna24

The £700 amount is approximate, but that is around the figure my dad mentioned.

He decided to take the higher lump sum as we worked out the difference if that makes sense and he would have to live longer than 10 years before taking the lower sum would have been more worthwhile.

Now, of course, we all want him to live until he's 102, but he's a pessimistic kinda guy. Has diabetes, is a bit overweight, so....

getmore4less

Urgent action.

which section of NHS pension

Review the lump sum choices nearly always a bad idea to take the smaller pension.

If he decides to continue to work(could take the pension and go pack part time) if already getting the state pension make sure the NI contributions on the work are stopped.

review how much bigger the pension would be by doing another year.

There are some quite good guides on the web about the NHS options worth reading up so you have an idea of ho it works, the 2 schemes are cery different.

It may be that he was persuaded to convert and it may not have been good advice if in the new scheme review when/how that happened and what the benefits would be if still in the 95.

pollyanna24

Is there a possibility that the "pensions lady" might have mentioned him being taxed on the lump sum because he is taking more than 25% of his pension due to taking the higher sum?

getmore4less

When you did the needs 10 years to break even did you factor in the index linking of the monthly pension?

jem16

pollyanna24 wrote: »

The £700 amount is approximate, but that is around the figure my dad mentioned.

He decided to take the higher lump sum as we worked out the difference if that makes sense and he would have to live longer than 10 years before taking the lower sum would have been more worthwhile.

Now, of course, we all want him to live until he's 102, but he's a pessimistic kinda guy. Has diabetes, is a bit overweight, so....

Did you factor in index-linking in your calculations?

Also the lower pension may mean that your Mum also receives a lower spouse pension after your father's death.

He would probably have been better taking the higher pension but living off the lower pension whilst saving the difference.

pollyanna24 wrote: »

Is there a possibility that the "pensions lady" might have mentioned him being taxed on the lump sum because he is taking more than 25% of his pension due to taking the higher sum?

He is not taking more than 25% as this is not allowed.

The automatic lump sum (assuming 1995 section) that he is entitled to is less than 25%. What your Dad is doing is increasing his lump sum up to the 25% - still no tax due.

Forget this "pensions lady" - she obviously hasn't got a clue if she's telling your Dad to defer for a year until the new pension changes come in. They don't apply to DB pensions.

pollyanna24

Eek! Now I really feel like I'm in over my head.

Re: working out the 10 years thing, it was a very basic thing that me and my brother worked out as Dad wanted to know the answer.

We suggested getting the lower lump sum and more pension each month, but for some reason, Dad's adamant that he wants the bigger lump sum. As far as I know, he doesn't have any plans for this money.

Not sure if he is able to change his mind about taking the higher sum or not?

There is a possibility (if he finds he gets bored I guess) of him going back to work part time, so I will take on board the bit about stopping NI contributions.

Have a feeling he converted to the new rules, can't say why I think that, but maybe something my brother mentioned.

[Deleted User]

pollyanna24 wrote: »

Is there a possibility that the "pensions lady" might have mentioned him being taxed on the lump sum because he is taking more than 25% of his pension due to taking the higher sum?

Far more likely that "pension lady" is actually just someone that works in HR with a cursory (mis)understanding of pensions. There is a lot of misinformation on pensions within the NHS.

If he takes a lump sum greater than 25% (if that is possible, which doesn't seem so from what jem said) he will be taxed at his normal tax rate. For a near 50% effective tax rate on his "extra" lump sum he would need to already be earning over £150,000 per year, which he obviously isn't based on the size of his 25% lump sum... and even then it would only be 45% on the amount over 25%.

Here's what you need to do: find all of the documentation on your fathers pension then come back to this forum and create a new thread including all the information, then people can advise you based on the facts. The information you've given here isn't enough and it sounds like there's a ton of misinformation in your possession from your family and the pension lady.

jem16

pollyanna24 wrote: »

Not sure if he is able to change his mind about taking the higher sum or not?

He may be able to as it's not in payment yet.

Have a feeling he converted to the new rules, can't say why I think that, but maybe something my brother mentioned.

Also a possibility as those in the 1995 section were given the opportunity to switch to the 2008 section. In this case there is no automatic lump sum and any that he takes (up to 25%) is subject to a commutation rate of 12:1. Can you tell us what the higher pension amount would be as this would help work out which section he is in?

pollyanna24

citricsquid wrote: »

Far more likely that "pension lady" is actually just someone that works in HR with a cursory (mis)understanding of pensions. There is a lot of misinformation on pensions within the NHS.

If he takes a lump sum greater than 25% (if that is possible, which doesn't seem so from what jem said) he will be taxed at his normal tax rate. For a near 50% effective tax rate on his "extra" lump sum he would need to already be earning over £150,000 per year, which he obviously isn't based on the size of his 25% lump sum... and even then it would only be 45% on the amount over 25%.

Here's what you need to do: find all of the documentation on your fathers pension then come back to this forum and create a new thread including all the information, then people can advise you based on the facts. The information you've given here isn't enough and it sounds like there's a ton of misinformation in your possession from your family and the pension lady.

I did ask him about this pensions lady and said "Is there really someone in the hospital and all they deal with is pensions?" His answer "Well, there are a lot of people who work there?" So I don't know really.

I don't think he will take the lower lump sum now even if he could change his mind.

He seems happy with the monthly amount he will be getting. His main (only) concern seems to be having to work an extra year so that he won't get taxed, but going from what people have said, this won't happen.

jem16

pollyanna24 wrote: »

I don't think he will take the lower lump sum now even if he could change his mind.

He seems happy with the monthly amount he will be getting. His main (only) concern seems to be having to work an extra year so that he won't get taxed, but going from what people have said, this won't happen.

I would perhaps ask him to reconsider as it could make a big difference to both him and your Mum.

If you can get the actual figures before and after lump sum choice, then someone here could work it out for you.