early retirement options

shaunandelly

NHS worker going for early retirement at 55. will be working part time after up to the allowable limit. Question is 75k pot and 11.5k pa payment or 45k pot and 14k pa?

lisyloo

What do you mean by pot? Is this a tax free lump sum you'll get?

Do you gave a mortgage?
Any plans for the lump sum?
How long do you expect to live? Given your health and long your biological relatives have lived?

The latter looks more attractive to me but that's without fairly major questions being answered.

Dazed_and_confused

And would the £14k actually turn out to be £13.5k net after tax or have you taken that into account when arriving at the £14k figure?

Silvertabby

Are you saying that you can have either:

£45K tax free cash plus annual pension of £14K

or

£75K tax free cash plus annual pension of £11.5K ?

If so, then you would be giving up £2.5K of index linked annual pension for the rest of your life in return for an extra tax free lump sum of £30K.

The NHS uses a commutation rate of 1:12, which isn't particularly generous - especially if you take it early, as you intend to do.

justme111

If you take into account tax you will pay on your income it will result in you givumg up £2 k yearly for 30 k lump sum. If you live for more than 15 years you would be quids in with larger pension. But then 30 k invested would give you - what, a guesstimate of about 3% return after inflation? Which is about 1 k a year plus ytou will have your 30 k at tye end of it to be passed on as inheritance but then if you are likely to predecease your significant other or have minor children NHS pension would pay something to them anyway... Depends what you want and what your position is. At the end of the day it is a guess on how investments are going to perform and in what is going to bring you the most happiness as thar is the function of money.

jackyann

If, like me, you are lucky enough to be able to take your pension at 55, then I am guessing that the payment will increase with inflation (mine does)
Based on average life expectancy, my calculations (and most other people's!) show that you are way better taking the smaller pot, and larger pension. Exceptions might be:
Short life expectancy (even then, consider spouse, partner, household sharer)
An urgent and specific need for the lump sum (consider loan rates)
The possibility for paying a high rate of tax if you continue to earn (unlikely but possible, and how long for?)

Sit down with a pencil and the back of an envelope, and unless you have a reason to think otherwise, do calculations based on average life expectancy, earnings until say 60ish, etc.
Good luck!

kidmugsy

jackyann wrote: »

Sit down with a pencil and the back of an envelope, and unless you have a reason to think otherwise, do calculations based on average life expectancy, earnings until say 60ish, etc.

Even using average life expectancy misses the point. The larger pension is insurance against outliving your money even if you live past 100. It's also index-linked whereas the extra capital won't be.

jamesd

shaunandelly wrote: »

NHS worker going for early retirement at 55. will be working part time after up to the allowable limit. Question is 75k pot and 11.5k pa payment or 45k pot and 14k pa?

The commutation rate of public sector schemes is poor so it's likely to be best to take the smaller lump sum.

If you do want a larger lump sum for some reason, look into a 0% for purchase credit card deal, those are available for up to three years or so at the moment. Then start to repay out of the higher income and use balance transfer deals until it's all repaid. probably can't get the full 30k extra this way but if some is for say home improvement a ten year loan for that might do the trick and with rates for those often in the 3-4% range it should leave you ahead on the deal.

Alexland

The smaller lump sum would be much better value for the majority of people. Unless you have reason to think you will have a short life or high interest debts to pay? Also worth considering recycling the lump sum back into a pension?

jackyann

kidmugsy wrote: »

Even using average life expectancy misses the point. The larger pension is insurance against outliving your money even if you live past 100. It's also index-linked whereas the extra capital won't be.

Yes, I take that point. In my mind I worked out the basic finances, had it come out differently then I would have factored in the 'insurance'.
However, it almost never does (except for short life expectancy, another matter altogether). I'm sorry to say that a financial advisor (I had a consultation through OH's work) wanted me to take the larger sum and give it to him to invest - I declined!

crv1963

shaunandelly wrote: »

NHS worker going for early retirement at 55. will be working part time after up to the allowable limit. Question is 75k pot and 11.5k pa payment or 45k pot and 14k pa?

Hi,


It does depend upon your circumstances and need for the larger lump sum or not. Also which NHS Scheme you are retiring early from.


For example under the scheme rules are you "special class" such as Mental Health Officer if so it is likely the 1995 scheme and 55 is normal age to retire.


If you are retiring and returning part time why retire early you could ask the Trust Pension Officer about freezing pension at current level- there are several different schemes in place to try to keep experienced staff in place.


Under the NHS Scheme (not 2015 one) regardless of the size of pension/ lump sum the rules about earnings after retirement all treat your pension as being the larger income, so your earnings as a direct NHS employee will be 14k + part time earnings and these two sums may not be greater than your last years wage before retirement or your pension will be abated (reduced).


Under the 1995 scheme and I think the 2008 scheme survivor benefits/ pension are not reduced regardless of the lump sum taken. Therefore if you don't expect to live for more than 12 years after NHS Pension commences or have a specific debt or purchase in mind that would not otherwise be affordable the larger lump sum makes sense. You should be able to see this on your pension forecast from the NHS Pension Agency- your Trust Pension Officer should be able to go through all the options for you but will not advise you what to do, that is for you, or you and an IFA to decide together.


Best wishes, I'm going next year well one year and 8 days but who's counting!


CRV