Help need on pension transition payment

Teedcee

Yes the money offered is basically a transitional payment or sweetener to accept the closure of the final salary scheme and being put into the money purchase one. My final salary scheme is fully paid up as I a am in my 41st year at the company

Teedcee

No I don`t think so, it has been offered as a transition payment for the closure of the final salary scheme and there are just the five options available

kidmugsy

Linton wrote: »

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

My point was about his having to pay NICs if he took the money as pay. I did say that if he took it as pension contributions there would be no NICs.

kidmugsy

Teedcee wrote: »

My final salary scheme is fully paid up

Well done! Now, you haven't mentioned any prospect of retiring before July 2020 so I'll assume that's not part of your plan.

So my question is: how strongly do you want money outside the DC scheme versus taking it from the DC scheme later, at a handsome profit? Note that taking the money via the pension sees you paying income tax at 20% on 75% of the scheme = 15% tax. Compare with 32% tax and NICs if you use options B to E. Alas, now I know your salary my NIC-avoiding wheeze is doomed.

So, your choice is

A: £28k, plus or minus whatever growth you get according to your choice of investment in the pension, less eventually 15% tax = about £23,800. Since you are already in your sixties you'd probably choose to invest the money within the scheme in something very low risk, such as a deposit account. Then the growth will be pretty tiny. (Note that if you die before drawing this pension and before age 75 your widow could inherit it all tax-free, unless there's a change in the law.)

B: £26k less 32% = £17,680.

So you'd need a compelling reason not to take the loot as a pension contribution. Maybe you have such a reason of course.

One last thing. There's a Budget later this month. In your shoes I'd hang back from telling my employer my decision until I see whether anything announced there might change my mind.

xylophone

Do you have a pressing reason for not taking the money as a pension contribution?

Teedcee

Thanks for all your advice. It is a lot to take in as I am not particularly financially astute so it has come as a great help to me thanks again :-)

Teedcee

I am fully paid up on the original final salary scheme, so I have decided to take the two payment option. I will use some of this to pay off a couple of loans I took out sometime ago Thanks Again for your advice

badmemory

Are they definitely going to pay these in only 2 lump sums? This will give you some savings on NICs. Also any tax you overpay should be returned over the rest of the tax year. I would suggest that if they try to change it to paying over 3 months in each tax year that it would be wiser not to agree as it will cost you in NIC. They probably won't as it will cost them more - but cashflow being what it is!

kidmugsy

Teedcee wrote: »

I am fully paid up on the original final salary scheme, so I have decided to take the two payment option. I will use some of this to pay off a couple of loans I took out sometime ago Thanks Again for your advice

Hold on. If you took the money as a pension contribution would the rules of your new scheme let you withdraw some of the money and still remain a contributing member of the scheme? Because if that were permitted it might prove pretty profitable.