NHS Pension advice

crv1963

redlfc wrote: »

yes thats what i thought - so missed the point being made with regards to wasting partners tax allowances - did he mean to ensure they are on some sort of pension scheme aswell (long term girfriend is doing a finance grad scheme so not sure what hers is)

I meant exactly that, make sure your partner/ spouse also has a good pension fund, in our case Mrs CRV pension pot is small- currently it stands at 100k and we are working hard to build it up further before she hits 55 and can access it.

We need to build it up as at a safe withdrawal rate of around 3.5% she will be wasting her tax allowance as she can only transfer a small amount of it to me. Better to have two pensions paying up to the tax allowance so 2x 11850 than one person getting nothing and the other 23.7k so paying 20% tax on 11850!

Also if you have the misfortune to divorce (as I did) and her pot is a lot smaller than yours you could lose a big chunk of your pot to her.

redlfc

HappyHarry wrote: »

There is no total pot. You are lucky enough to have a defined Benefit (DB) scheme. This is a promise to pay you a pension for life.

Those less fortunate have Defined Contribution (DC) pensions, which do have a pot of money, which the individual needs to work out how best to use to provide a lifetime income in retirement. These DC schemes are the ones that the 25% tax free cash generally refers to.

However, you will be able to "commute" some of your NHS pension for a tax-free lump sum., i.e. get a tax free sum and receive a lower pension for the rest of your life. This is generally a poor value option.




Yes, you will also be eable to claim the state pension, of around £8,500 per year.

thanks!

Is this state pension fixed at this amount or does it also go up when i earn more/with inflation?

GunJack

redlfc wrote: »

thanks!

Is this state pension fixed at this amount or does it also go up when i earn more/with inflation?

It currently gets uplifted by the higher of average wage growth/CPI inflation/2.5%, often referred to as the Triple Lock, so a min of 2.5%p.a. under current rules.

crv1963

redlfc wrote: »

thanks for your reply! I do definitely plan on remaining in NHS pension!

My point was that if say I was to pass away before I had even recouped the money I invested across my career - even with the 33% my partner would get it would be a loss but I guess thats just how it goes!

when you refer to the tax benefit - what do you mean by that? For instance if, in addition to my NHS pension, i invested into ISAs each month - that would also collect interest and remain tax free if im not mistaken?

But the survivor pension is payable for the lifetime of the survivor, so have you filled in the form to nominate your girlfriend for the pension? If not, do it.

Tax benefit is less obvious with DB schemes, basically you have your contribution deducted at source- so before tax is paid on your wage reducing your taxable income.

With some DC schemes/ SIPPs you pay from after tax income or out of take home pay so the pension fund gets credited by the HMRC with the tax that has/ would have been paid.

ISAs are a different tax efficient way of saving, they are built from taxable income so their feature is the profits/ income from them is tax free.

Pensions taxed on the way out, ISAs on the way in.

redlfc

crv1963 wrote: »

I meant exactly that, make sure your partner/ spouse also has a good pension fund, in our case Mrs CRV pension pot is small- currently it stands at 100k and we are working hard to build it up further before she hits 55 and can access it.

We need to build it up as at a safe withdrawal rate of around 3.5% she will be wasting her tax allowance as she can only transfer a small amount of it to me. Better to have two pensions paying up to the tax allowance so 2x 11850 than one person getting nothing and the other 23.7k so paying 20% tax on 11850!

Also if you have the misfortune to divorce (as I did) and her pot is a lot smaller than yours you could lose a big chunk of your pot to her.

thanks! sorry youve lost me a bit with the maths there! if her pot is 100k and she gets first 25% lump sum tax free (assuming DC as pot based pension) she has 75k left of which she could take out 11,850 per year tax free - so why cant she just take out the remaining 75k out over the 7 or so years to ensure she pays no tax

not sure what you mean by transferring to you nor the 3.5% figure, sorry!

redlfc

GunJack wrote: »

It currently gets uplifted by the higher of average wage growth/CPI inflation/2.5%, often referred to as the Triple Lock, so a min of 2.5%p.a. under current rules.

thank you! just to clarify does everyone who works get a state pension in addition to work pension? And state pension can only be currently accessed at 67 - which is the same age as the work pension can be accessed without any fees for early access

redlfc

crv1963 wrote: »

But the survivor pension is payable for the lifetime of the survivor, so have you filled in the form to nominate your girlfriend for the pension? If not, do it.

Tax benefit is less obvious with DB schemes, basically you have your contribution deducted at source- so before tax is paid on your wage reducing your taxable income.

With some DC schemes/ SIPPs you pay from after tax income or out of take home pay so the pension fund gets credited by the HMRC with the tax that has/ would have been paid.

ISAs are a different tax efficient way of saving, they are built from taxable income so their feature is the profits/ income from them is tax free.

Pensions taxed on the way out, ISAs on the way in.

this makes a lot of sense, thank you! so with SIPPs the gov actually credit back the 20/40% tax you paid on top of whatever interest you earn on what you invest? and then are they treated the same way in terms of paying tax when accessing them as work based pensions?

crv1963

redlfc wrote: »

thanks! sorry youve lost me a bit with the maths there! if her pot is 100k and she gets first 25% lump sum tax free (assuming DC as pot based pension) she has 75k left of which she could take out 11,850 per year tax free - so why cant she just take out the remaining 75k out over the 7 or so years to ensure she pays no tax

not sure what you mean by transferring to you nor the 3.5% figure, sorry!

There is a general discussion of a safe withdrawal rate of around 3-4% pa from a DC Pot that theoretically means at this rate the pot should last the lifetime of the owner without ever running out.

She could take up to 11850 pa from the remaining 75k but it would then run out before she dies (hopefully), meaning her income would drop at that point.

One of the problems of a DC over a DB pension, the DB pension trumps the DC one in terms of never running out. DC trumps DB in terms of there being a pot of money to pass on to heirs if run effectively.

Hence pension planning should be done as a couple if you can, to maximise effective tax planning and ensure whichever is the ultimate survivor doesn't have too big of an income drop.

redlfc

Flugelhorn wrote: »

As a new NHS pensioner, my lump sum landed in my bank account today. My advice to the OP - stick with it. I can remember it looked very feeble amounts of money when I was a junior doc but things changed.

Yes you will probably breach the LTA at some point - I did 2 years ago and left the scheme then, deferring the pension until this week.

thanks for the reply! if you had stayed in and surpassed LTA - would you get taxed 55% on pension above 50k pa (roughly 20x this would be 1 million) which would otherwise have been taxed at 40% (as in that tax bracket)

Why did you defer out of interest - is it because theres penalties for accessing before 67?

congrats on retirement!

redlfc

crv1963 wrote: »

There is a general discussion of a safe withdrawal rate of around 3-4% pa from a DC Pot that theoretically means at this rate the pot should last the lifetime of the owner without ever running out.

She could take up to 11850 pa from the remaining 75k but it would then run out before she dies (hopefully), meaning her income would drop at that point.

One of the problems of a DC over a DB pension, the DB pension trumps the DC one in terms of never running out. DC trumps DB in terms of there being a pot of money to pass on to heirs if run effectively.

Hence pension planning should be done as a couple if you can, to maximise effective tax planning and ensure whichever is the ultimate survivor doesn't have too big of an income drop.

forgive my for my stupidity but im still not understanding - Yes if she took out 11,850 a year from her pension pot then its run out in terms of there being no pension left but that way she now has the entire 100k pension into her bank account without paying any tax on a penny after 7 years - surely thats the best scenario as she is now free to use the money as lavishly/frugally as she would like not to mentioning passing some of it over to you/children

Surely by taking out 3-4% a year she is not only not making the most of the 11850 tax free allowance, but also risking not using up her pension pot if the worst were to ever happen!

The bit that is confusing me is the planning as a couple - do you mean theres anything you/she could do to help the other person in terms of tax relief? i.e would some of your taxable pension be able to be transferred to her to use up as part of her tax free allowance?