Tax on nhs pension

getmore4less

I thought the NHS provided proper pensions advice for those approaching retirement as part of the retirement planning.

Check the local trusts website for info, most have this publicly available these days.

google nhs retirement planning <trust name> or something similar

getmore4less

Have you done a SOA for them a before and after to make sure they can live of the reduced income.

If it shows that the increased lump sum will just end up getting spent on living costs and not last that long that might make a review of the choices more urgent.

hyubh

kidmugsy wrote: »

You don't: the 25% figure is misleading because it applies to a quite different sort of pension.

jem16 wrote: »

Depends on which section he is a member of. If 1995 section then yes the above applies.

No, a maximum lump sum of 25% of the notional capital value applies for both sections - it's just that in the 1995 one, the larger part of the maximum is taken by the automatic lump sum. In both cases if you wish to increase the default lump sum (3/80 or nil) then the commutation rate is 12/1:

http://www.nhsbsa.nhs.uk/Pensions/2676.aspx

jem16

hyubh wrote: »

No, a maximum lump sum of 25% of the notional capital value applies for both sections

Yes I know that. However my comment was in reference to this part;

kidmugsy wrote: »

What applies to your father's NHS pension is, from the link I gave you above: "Your lump sum will normally be 3 times your yearly pension".

and not the 25% part which you have quoted although I could have made it clearer in my quote.

quotememiserable

pollyanna24 wrote: »

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.

Can I just say you're doing a great job for your dad here, and you seem to be taking all the info in very well and reading the good advice that's here. So well done for this, you could make a real difference to you dad making the right decision.

It is probably a poor financial decision to take the cash for someone who doesn't need it to pay a particular debt, because invested it won't make enough to pay out the same as the sacrificed pension. Do you know that average life expectancy in england is currently about 82? Saying all this, if he's adamant about his decision there's not point causing a rift by pushing too hard. You could maybe point out some facts, though.

trickydicky14

Hi I hope its ok but could I ask you knowledgeable people to expand a little on a comment that has been voiced a lot in this thread. I also have a modest NHS pension that is due to pay out in one years time as I will be 60, regarding bigger lump sums you talk a lot about, “ Commutation rate may not be advantageous, and dire commutation rate of 12:1” So if I am not desperate for the money you feel I should keep a higher monthly pension and a smaller lump sum ? P.S Good luck pollyanna24 your doing a great job for your dad, hope he can see the light.

jem16

trickydicky14 wrote: »

So if I am not desperate for the money you feel I should keep a higher monthly pension and a smaller lump sum ?

Basically, yes.

if you have no plans to actually spend the higher lump sum, then you will never achieve through savings what you are giving up. Even investing would see it very difficult.

pollyanna24

Okay, so I've got some paperwork off dad and I'm no clearer than I was before!

On the top it says, nhs pensions and benefit statement (2008 section) which makes me thing he's under the new rules even though mum told me he had to sign something a few years ago and they said they wanted to stay on the old system.

The £32,000 figure I had was misleading, sorry. It's actually £42,000 but dad was told that the first £10,000 was tax free and he'd only be taxed on the remaining £32,000.

There are so many different figures on the letter he's been given, but I think (haha, what do I know?!), his options are:-

Lump sum of £42,923.14
Pension of £6,438.47
Survivor pension of £3,755.78

Lump sum of £17,049.00
Pension of £8,585.49
Survivor pension of £3,755.78

I'm guessing the survivor bit is what my mum gets as a pension if dad dies before her?

He's got until 23rd may to make his mind up as that is when he has to hand his notice in.

I've suggested they see an independent financial adviser and pay some money to get a proper opinion, but also have no idea where's they find one of these.

Wilkins

pollyanna24 wrote: »

Lump sum of £42,923.14
Pension of £6,438.47
Survivor pension of £3,755.78

Lump sum of £17,049.00
Pension of £8,585.49
Survivor pension of £3,755.78

Yup, commutation rate is 12:1. He'd be foolish not to take the maximum pension if in reasonable health. The tax issue still makes no sense to me, though.

jem16

pollyanna24 wrote: »

Okay, so I've got some paperwork off dad and I'm no clearer than I was before!

On the top it says, nhs pensions and benefit statement (2008 section) which makes me thing he's under the new rules even though mum told me he had to sign something a few years ago and they said they wanted to stay on the old system.

Yes he is in the new scheme which has no automatic lump sum. Any lump sum that he takes is done by commuting some of the pension. As we've said already he would be much better off taking the higher pension.

The £32,000 figure I had was misleading, sorry. It's actually £42,000 but dad was told that the first £10,000 was tax free and he'd only be taxed on the remaining £32,000.

What a load of rubbish! Whoever told him that seems to be looking at it as if this was his annual pension.

There are so many different figures on the letter he's been given, but I think (haha, what do I know?!), his options are:-

Lump sum of £42,923.14
Pension of £6,438.47
Survivor pension of £3,755.78

Lump sum of £17,049.00
Pension of £8,585.49
Survivor pension of £3,755.78

Yes it's the normal poor commutation rate. However he does have other options too. The £42k lump sum is the maximum he can take tax-free. It sounds like he must take the £17k as a minimum ( I believe something to do with transferring from the 1995 section ). However he could choose anything between those two options.

I'm guessing the survivor bit is what my mum gets as a pension if dad does before her?

That's correct. At least it doesn't affect your Mum's pension if your Dad takes a lower pension.

He's got until 23rd may to make his mind up as that is when he has to hand his notice in.

I've suggested they see an independent financial adviser and pay some money to get a proper opinion, but also have no idea where's they find one these.

I don't think financial advice is really worth it in this case. The best answer is to take the higher pension and I would expect any decent FA to tell you this.