Lifetime allowance query

masco1

I have asked 3 different Financial advisors the same questions and got three different answers. It is hard to know who is correct and to whom I should seek paid advice.

I am 57 and have had a NHS pension (1995 scheme) since 1980. I am in the fortunate position where my final salary in 2.5 yrs (when I reach sixty in 2021) will be around £105,000. For various reasons, I will take the maximum lump sum. Questions are:
1) I think I will exceed the LA and will therefore end up paying 55% tax on part of the lump sum. (I have no individual protection). Is this correct?

2) If the above statement is true, when will I reach the point at which I should stop paying in to the pension?
3) I would really like to retire in 2020 when I am 59. What are the financial and pension implications?
I realise this is asking for 'free' information but I was hoping for a consensus opinion that agrees with one of the FAs that I have spoken to. Thanks in advance

kidmugsy

Why not tell us the size of your expected lump sum at 60, and the expected annual pension?

Then tell us the actuarial reduction that applies if you retire at 59? You can tell us whether that applies to both pension and TFLS too.

masco1

ok, thanks. Here is the info using NHS pensions calculator:

Standard: Pension £53,230; Lump sum £159,690
Giving up pension to increase lump sum - Pension£42,775; LS £285,150
The latter is the preferred option although I think it may be that I can only take 25% of the lifetime allowance which is circa £250,000. Not sure if that is correct.

masco1

PS
if retirement at 59:
Standard: Pension £49, 474; Lump sum £151,069
Giving up pension to increase lump sum - Pension £39,898; LS £265,981

Silvertabby

LTA for a DB pension is 20 times the annual pension plus the lump sum:

Standard pension: 20 x £49,474 + £151,069 = £1,140,549

Maximum commutation: 20 x £39,898 + £265,981 = £1,063,941

The difference between the 2 figures ( £76,608) is the cost of commutation (1:12) over an average life span.

HappyHarry

masco1 wrote: »

I have asked 3 different Financial advisors the same questions and got three different answers. It is hard to know who is correct and to whom I should seek paid advice.

I am 57 and have had a NHS pension (1995 scheme) since 1980. I am in the fortunate position where my final salary in 2.5 yrs (when I reach sixty in 2021) will be around £105,000. For various reasons, I will take the maximum lump sum. Questions are:
1) I think I will exceed the LA and will therefore end up paying 55% tax on part of the lump sum. (I have no individual protection). Is this correct?

2) If the above statement is true, when will I reach the point at which I should stop paying in to the pension?
3) I would really like to retire in 2020 when I am 59. What are the financial and pension implications?
I realise this is asking for 'free' information but I was hoping for a consensus opinion that agrees with one of the FAs that I have spoken to. Thanks in advance

The NHS have a load of very useful information and examples on all aspects of their pension schemes.

This link has good examples of how the LTA charge will apply.

https://www.nhsbsa.nhs.uk/member-hub/lifetime-allowance

There is a link to a pdf containing examples about 1 page down - sorry, I don't seem to be able to link directly to it.

If you follow through an example which is similar to your situation, using your own figures, you will come to the correct outcome.

I've run through these with a couple of clients, and it has always been accurate.

TARDIS

1) Depends when you retire. Looks to me like you could probably retire soon and just come under the LTA if you take more than the minimum lump sum. Whether that's the right option for you is a different question though.
2) Do you mean when will you hit LTA? Depends on when how early you plan to retire and how big a lump sum you take.
3) if you retire earlier you will get less annual pension, but pay less tax. Exactly how much depends on when you choose to retire and how big a lump sum you take.

Have you thought about the non-tax issues? How much do you actually need/want and when would you like to stop working?
Personally in your shoes I'd retire ASAP as £40k pa would do me fine and I'd prefer a few more years of freedom to the extra money. But you may have different needs and priorities so it's really an individual decision and tax is only a small part of it.