Civil Service Voluntary Early Release (VER) ... tax position

uknick

ColinB wrote: »

Say what ??? So you get overtaxed, just when your income drops ? That sounds really annoying, is there any way to avoid that ?

I agree it's a pain, but it's how payroll systems work. I don't think you can avoid it unless you pay it all into a pension scheme at source. But, don't forget you will get it back. This can be quite quick if you have the numbers all ready to go and you apply for the refund. However, if you wait until July, or so, in the next tax year HMRC should figure it out themselves that you've paid too much tax and give you the refund without any involvement from you.

ColinB wrote: »

I always thought the point of buying-out the reduction is that you get the increased pension for ever (well, until death anyway). If you rely on topping up the pension from the lump sum then it doesn't have to last just two years, it has to continue making up the difference until you die ... which hopefully is a few years off yet. Or have I got that wrong ? Plus if I don't do it, I end up paying more tax (lots more tax), which kind of goes against the grain.

Sorry, I mustn't have made myself clear. You don't take your pension early. You live off the cash lump sum until the pension can be taken at NRA. You then get the full pension. From the numbers you've quoted I assume you have a NRA of 60 and a lump sum that is greater then £30K. Is this enough to live on until you reach NRA?

I had 10 years until NRA so worked out scenarios for;

* take pension 10 years early and buy out actuarial pension reduction with lump sum and assume not working again

* take lump sum and plan to take pension 5 years early at roughly a 25% drop in pension (each year early is about 5% reduction) and assume not working again

* take lump sum and get another job until NRA

It's not a set of simple calculations because you have to take into account the tax implications and inflation.

For me, the first two choices were pretty even with regard to how much cash I would end up with over time. In the end I chose the first option as I found it was better to say I'm retired with a pension for things like insurance, credit checks etc.

But, it can be complicated and I think help should be given to those staff looking to take VER, not just saying you've got 10 days to make one of the biggest decisions of your life.

saintalban

Very much agree with uknick that help should be given to staff considering VER offers, as its a really tough decision. I applied for a quote a few years back and tore my hair out during the 5 days I was given to decide, ending up turning the offer down. Then I was thinking in terms of taking early retirement and buying out the actuarial reduction with the compensation money.


However, the years have rolled on and I am now again considering VER with what will be 2 years to go until my pension age of 60. This time I would like to just take the compensation money and live off that, and preserve my pension until I am 60 or over so there is no actuarial reduction. According to my most recent statement my pension at 60 is £17,700 pa with a lump sum of £53,000. I haven't been able to work out how much these two figures would be reduced by not contributing towards pension for 2 years, if I go early on VER. Anyone have any idea?

uknick

saintalban wrote: »

However, the years have rolled on and I am now again considering VER with what will be 2 years to go until my pension age of 60. This time I would like to just take the compensation money and live off that, and preserve my pension until I am 60 or over so there is no actuarial reduction. According to my most recent statement my pension at 60 is £17,700 pa with a lump sum of £53,000. I haven't been able to work out how much these two figures would be reduced by not contributing towards pension for 2 years, if I go early on VER. Anyone have any idea?

The figures you quoted, do they assume retiring at NRA? If you are on the Classic scheme, which I assume you are as you are quoting a lump sum, you'll need to reduce the amounts quoted by about 2/80.

saintalban

Thanks for the 2/80 reduction figure uknick, I reckon I could live with that kind of reduction on pension & lump sum for the benefit of not having to work for 2 years! The figures I quoted are if I retire at 60 - my NRA is 66. Yes I'm in the classic scheme.

uknick

saintalban wrote: »

Thanks for the 2/80 reduction figure uknick, I reckon I could live with that kind of reduction on pension & lump sum for the benefit of not having to work for 2 years! The figures I quoted are if I retire at 60 - my NRA is 66. Yes I'm in the classic scheme.

When you say NRA is 66 I assume you mean for the state pension, not the Classic pension. I should have defined my TLA NRA as the Normal Retirement Age for your civil service pension.

Is it right to also assume, as you are close to 60, the new CARE scheme does not affect you?

One advantage if you do decide to carry on working is you can save bucket loads, i.e. the difference between your pension and salary, as you've calculated you don't need this amount to live on at the moment.

saintalban

Yes on all point uknick. Carrying on working would indeed help save money, which perhaps I would put into buying added pension, but I would like to do other things with the time I have left ...