Help need on pension transition payment

Teedcee

Hi to all, I hope someone can give me advice on my following problem. The company I work for is closing my final salary pension scheme to a money purchase one.
I and other`s have been offered the following options as a transitional payment
A £28000 as a pension contribution payed in February 2009

B £26000 payable in cash in two instalments during December 2018
and July 2019

C £26000 payable in cash in three instalments during December 2018 July 2019 and July 2020


D £13000 payable in cash in two instalments in December 2018 and July 2019 and then £14000 payable pensionable contribution during Feb 2009


E £13000 payable ibn three instalments December 2018 July 2019 and July 2020 and £14000 payable pensionable contribution during Feb 2009

I am advised I will pay Tax and Ni on the last four options, could someone advise me approximately what I could expect to pay. I am a lower rate tax payer.

Any advice would be gratefully appreciated.

Linton

What is your normal annual income? If the transition payment is paid to you as cash it will be taxed as additional income and so could put you into the higher rate tax band.

MK62

Unless you need the cash to pay off expensive debt, then on the face of it, option A would seem to be the best option from the perspective of securing the best pension provision, (but without knowing all the circumstances involved, that's why it's qualified with "on the face of it")

Albermarle

Normally there should be also be an option to leave the money ( and accrued benefits ) in the final salary scheme and start from scratch with the new money purchase scheme . Although lots of final salary scheme close to new contributions, the schemes usually remains active until the final pensioners dies I guess.
Or maybe I have misunderstood and the final salary benefits remain , and the money offered is actually just compensation or having to move to an inferior scheme ?

cloud_dog

Depending on factors such as your salary.... Is it possible for the company to make these payments in to your new DC pension? That way you would avoid some/all of taxation issues.

Can they make the contribution as a company contribution and therefore your salary and taxation is irrelevant.

tacpot12

If the last four options are taxable, then option A is the best option (but only if there is no option to leave money in the Defined Benefits scheme). I think it will also work best with respect to timing as I expect the UK stock market to continue to fall in the run up to Brexit.

kidmugsy

Teedcee wrote: »

The company I work for is closing my final salary pension scheme to a money purchase one. I and others have been offered the following options as a transitional payment.

A £28000 as a pension contribution payed in February 2019

B £26000 payable in cash in two instalments during December 2018
and July 2019

C £26000 payable in cash in three instalments during December 2018 July 2019 and July 2020

D £13000 payable in cash in two instalments in December 2018 and July 2019 and then £14000 payable pensionable contribution during Feb 2019

E £13000 payable in three instalments December 2018 July 2019 and July 2020 and £14000 payable pensionable contribution during Feb 2009

I am advised I will pay Tax and Ni on the last four options, could someone advise me approximately what I could expect to pay. I am a lower rate tax payer.

(i) I assume that the pension payment is into the new DC scheme, not some sort of boost for the DB? (ii) How old are you? (iii) I echo Linton: in the absence of this new money, what is your expected taxable income in the tax years 18/19, 19/20, and 20/21?

Anyway, if you remain a basic rate taxpayer you'll pay 20% Income Tax and 12% National Insurance Contributions, if the rates remain unchanged.

You could effectively avoid the income tax by contributing to a personal pension of your own - but in that case why not just use your occupational scheme? You can't avoid the NICs.

Whereas when you finally draw out of the pension you would, under present rules, get 25% as a tax-free lump sum, probably get a bit of the rest untaxed up to your Personal Allowance for income tax, the rest taxed at 20%, and no NICs to pay.

So if you take the long view you'd expect to profit handsomely by taking all or part of the transitional payment as pension contribution. Your decision might depend on how close you are to the age when you can draw out the TFLS (for example) i.e. 55.

Which raises a point: will your new DC rules let you transfer out some of your capital while allowing you to remain a member of the scheme and continue contributing? That would be well worth knowing.

kidmugsy

One way to look at your choice is to ask yourself what you'd use the capital for if you took some of it as cash (less 32% tax and NICs). If, say, you had expensive debt to clear, then it might make sense. If you've got a cheap mortgage that you'd like to overpay it might make little sense. If you feel you don't have enough emergency cash savings it might make sense.

By the way, a wheeze has occurred to me - you might be able to avoid a lot of the NICs. I need your reply to my question (iii) above.

Linton

kidmugsy wrote: »

(i) I assume that the pension payment is into the new DC scheme, not some sort of boost for the DB? (ii) How old are you? (iii) I echo Linton: in the absence of this new money, what is your expected taxable income in the tax years 18/19, 19/20, and 20/21?

Anyway, if you remain a basic rate taxpayer you'll pay 20% Income Tax and 12% National Insurance Contributions, if the rates remain unchanged.

You could effectively avoid the income tax by contributing to a personal pension of your own - but in that case why not just use your occupational scheme? You can't avoid the NICs.
......

I assume that all the payments into the employers pension scheme would be classed as an employer contribution and so no NICs to pay.

Teedcee

Salary is around £28000 per annum

Teedcee

HI yes it it into a new dc scheme, I am 61 years young, Taxable income will be between £28000 and £30000