NHS Pension advice

Flugelhorn

redlfc wrote: »

thanks for the reply - how the actual tax is applied is whats confusing me

for example lets say my pension was 60k a year - would i be correct in assuming only the amount from 50-60 would be taxed at 55% as its over the LTA?

and the amount from 11,850-46,250 (or whatever tax brackets are at the time) is taxed at 20%?

I hear a lot of responses about that tax relief the governent give but not really sure what this applies to

When you get your pension, any income that is over the LTA amount is taxed at 25%, then it would get given to you and you would be taxed as though the whole lot was normal income ie first part @ 20% second part @ 40%

It is only if you take a very large lump sum (> 25% of the LTA) that you would pay 55% on the excess of that

This is an approx example worked for the old 95 scheme with the 1.25m protection:

Pension = 56000
Lump sum = 168000
Pension value 1288000 (so in excess of the LTA)
Pension allowed under LTA of 1.25m= 54100
Difference between actual pension paid and that allowed under LTA = 1,900
taxed at 25% means extra tax of £475
Pension then becomes £55,525 and is taxed as income

crv1963

redlfc wrote: »

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

Yes almost everyone. If you pay enough NI contributions you get a SP. You as a Doctor will pay enough, so you will under current rules get a SP.

You can access your pension early in the NHS but pay a heavy price with it being reduced because it will be in payment longer. I pointed you towards the BMA website as it advises doctors specifically but you can also go to the NHS Pensions website and read how to access your pension 3 years earlier by paying a small percentage extra- a few I work with are doing this.

If someone has a DC Pension Pot they currently can retire and access this at 55 but this is going to go up at some point to only 10 years before SPA, so 57.

I'm guessing that Frugelhorn was in either the 1995 or 2008 version of the NHS Pension so has retired at 60.

For you personally to retire at say 57 you will need to plan to have whatever retirement income you choose that you will need to come from other savings.

So say you need 40k pa to retire you need to fund 10 years at 40k, 10x 40=400k. But if you pay now to get 40k earlier at age 64 you only need 7x 40= 280k. Through the NHS Pension Scheme. So that small percentage paid now equates to 120k income over 3 years in 32 years time. You cannot get that level of return in the open market!

Then to save 280k over the next 32 years you need to use other tax efficient means such as LISA- access at 60-64, and ISA to fund 57-60.

Breaking it all down into manageable chunks or pots makes it easier to plan. There will be other calls on your income- maybe wedding, children, house, cars, holidays etc, so small amounts saved now need time to grow.

If your girlfriend is also savvy you build her pots up too, thereby reducing the amount you have to save in your pots, balancing it as you take it out in terms of tax efficiency.

So if she is studying and not earning put 2880 into a pension in her name now, this will be made up to 3600 by the HMRC even if she does not pay tax now.

You have time in the market to build sizeable pots up, also don't forget to live for now though.

crv1963

redlfc wrote: »

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

Inside a Pension pot it hopefully will continue to grow and can be passed on free of inheritance tax. Inside a pension drawn as income would mean the pot of money will last a lifetime, in a bank it would lose to inflation.

In a bank it is more likely to be assessed as a usable cash asset for any future care needs.

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!

Correct, hence the importance of ensuring spouse also has a decent sized pension pot. I will always be a taxpayer, she will not.

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?

All she could do is transfer some of her tax allowance to me.I cannot under pension rules transfer any of my pension to her, excepting at death when she will get survivors pension.

So by building her pot now we can hopefully get her a bigger pension. There are different ways of doing this either she can increase her pension contributions and reduce her contribution to the household or we could work longer or both.

Hence the advice to also look to your girlfriends pension pot.

redlfc

Flugelhorn wrote: »

When you get your pension, any income that is over the LTA amount is taxed at 25%, then it would get given to you and you would be taxed as though the whole lot was normal income ie first part @ 20% second part @ 40%

It is only if you take a very large lump sum (> 25% of the LTA) that you would pay 55% on the excess of that

This is an approx example worked for the old 95 scheme with the 1.25m protection:

Pension = 56000
Lump sum = 168000
Pension value 1288000 (so in excess of the LTA)
Pension allowed under LTA of 1.25m= 54100
Difference between actual pension paid and that allowed under LTA = 1,900
taxed at 25% means extra tax of £475
Pension then becomes £55,525 and is taxed as income

thats very helpful - thank you

based on those figures - unless im mistaken it doesnt seem like the LTA has a massive financial impact to the point where its worth leaving the NHS pension/retiring when youve reached the LTA

or did i misunderstand?

badmemory

I do really love the blame the baby boomers posts. Do you mean the posts that say the baby boomers are (unlike those born after 1953) less tall than their parents because of the bad (severe - rickets anyone) nutrition caused by rationing? Yes I do remember meat rationing, I also remember my mother telling me to be really nice to the butcher or we wouldn't be having a Sunday joint (post rationing). As it happens my mother was (including until her 80s) a really good looking woman, and managed to keep us well fed by a minor amount of flirting.



Those voting no deal brexit would have a lot to learn from her!

redlfc

crv1963 wrote: »

Yes almost everyone. If you pay enough NI contributions you get a SP. You as a Doctor will pay enough, so you will under current rules get a SP.

You can access your pension early in the NHS but pay a heavy price with it being reduced because it will be in payment longer. I pointed you towards the BMA website as it advises doctors specifically but you can also go to the NHS Pensions website and read how to access your pension 3 years earlier by paying a small percentage extra- a few I work with are doing this.

If someone has a DC Pension Pot they currently can retire and access this at 55 but this is going to go up at some point to only 10 years before SPA, so 57.

I'm guessing that Frugelhorn was in either the 1995 or 2008 version of the NHS Pension so has retired at 60.

For you personally to retire at say 57 you will need to plan to have whatever retirement income you choose that you will need to come from other savings.

So say you need 40k pa to retire you need to fund 10 years at 40k, 10x 40=400k. But if you pay now to get 40k earlier at age 64 you only need 7x 40= 280k. Through the NHS Pension Scheme. So that small percentage paid now equates to 120k income over 3 years in 32 years time. You cannot get that level of return in the open market!

Then to save 280k over the next 32 years you need to use other tax efficient means such as LISA- access at 60-64, and ISA to fund 57-60.

Breaking it all down into manageable chunks or pots makes it easier to plan. There will be other calls on your income- maybe wedding, children, house, cars, holidays etc, so small amounts saved now need time to grow.

If your girlfriend is also savvy you build her pots up too, thereby reducing the amount you have to save in your pots, balancing it as you take it out in terms of tax efficiency.

So if she is studying and not earning put 2880 into a pension in her name now, this will be made up to 3600 by the HMRC even if she does not pay tax now.

You have time in the market to build sizeable pots up, also don't forget to live for now though.

this is so very helpful thank you!

For those in DC schemes can they access pension at 55 without the heavy deductions that the NHS DB scheme has? I did look into ERRBO but the consensus feeling I got from forums too were that it was better off just waiting the extra 3 years so i think I prefer your method of using ISA/LISA to fund retirement from 57-67

" But if you pay now to get 40k earlier at age 64 you only need 7x 40= 280k. Through the NHS Pension Scheme. So that small percentage paid now equates to 120k income over 3 years in 32 years time. You cannot get that level of return in the open market!" - lost me here - i thought to access NHS pension before 67 youd pay heavy costs?

The amount 2880 , is that specific amount for any particular reason? I presume you mean invest into a SIPP where the 25% is added on top?

redlfc

crv1963 wrote: »

Hence the advice to also look to your girlfriends pension pot.

Inside a Pension pot it hopefully will continue to grow and can be passed on free of inheritance tax. Inside a pension drawn as income would mean the pot of money will last a lifetime, in a bank it would lose to inflation.

In a bank it is more likely to be assessed as a usable cash asset for any future care needs.

god theres so many things they dont teach you at school haha - had no idea pension pots grew interest/rose with inflation - nor did i know pensions could be passed on free of tax - iis it just the NHS pension whereby survival tax is 33%? so in your wifes case all the money in her pension could get passed on without paying any tax? thank you


"Correct, hence the importance of ensuring spouse also has a decent sized pension pot. I will always be a taxpayer, she will not. All she could do is transfer some of her tax allowance to me.I cannot under pension rules transfer any of my pension to her, excepting at death when she will get survivors pension. "

This bits slighlty confused me - how can she transfer her tax allowance to you? and why is she able to but you arent?

crv1963

redlfc wrote: »

this is so very helpful thank you!

For those in DC schemes can they access pension at 55 without the heavy deductions that the NHS DB scheme has? I did look into ERRBO but the consensus feeling I got from forums too were that it was better off just waiting the extra 3 years so i think I prefer your method of using ISA/LISA to fund retirement from 57-67

" But if you pay now to get 40k earlier at age 64 you only need 7x 40= 280k. Through the NHS Pension Scheme. So that small percentage paid now equates to 120k income over 3 years in 32 years time. You cannot get that level of return in the open market!" - lost me here - i thought to access NHS pension before 67 youd pay heavy costs?

The amount 2880 , is that specific amount for any particular reason? I presume you mean invest into a SIPP where the 25% is added on top?

DC pensions are accessed currently at 55 but at some point it will be 57 without reduction.

They are completely different to DB schemes. The clue is in the title- Defined Contribution, you contribute, carry all the risk- choice of provider, funds to invest in and a crash at some point in time, but hopefully not just as you go to take them.

Defined Benefit- you pay your money, the employer promises to pay an inflation linked pension depending on your length of service and salary.

DB wins hands down in my book!

ERRBO- you are paying now to cancel a reduction for taking your pension earlier. The earlier you start the cheaper it is, saving the size of pot needed could be hard and if there is a big stock market crash just before or after you retire then you may be forced to delay. By paying in you are getting certainty at 65 (just realised your SP is 68).

You choose to increase present contributions so you can access the pension up to 3 years earlier so at your age for 3.66% or roughly £1100 pa for 40 years (44000k) you get your unreduced pension 3 years before it is due, profit of almost 80k.

Not allowing for inflation or rise in wages. When I qualified a top band Charge Nurse earned 12k pa including shift allowance, now it's nearer 46k!

The ERRBO cancels risk, gets you your pension earlier without reduction. You may also do better with ISAs, but are you certain?

If I was starting my career over I would use a mix of ERRBO and ISA.

£2880 is the current maximum a none taxpayer can put into a SIPP, gets made up to £3600 by the HMRC. If thinking of doing this ask a new question/ thread as there are others that are more knowledgeable about the best provider/ funds to look at.

If it is any help one of my sons at 21 is investing 100% into equities in his pension accepting at some point it may drop by 50% but time in should recover, the market should let him continue on and he'll review the choice in his 40s.

You can hold the same funds in either a SIPP or an ISA, it is just the tax wrapper that is different.

The truth is that any consensus will have different views within it, what is good at 25 maybe useless at 30, 40 or 50.

Another option you may want to consider in your research may be an appointment with a Financial Adviser? Firm up some plans/ ideas and read a bit more here and elsewhere so you have a good idea of what you want from the appointment?

crv1963

redlfc wrote: »

god theres so many things they dont teach you at school haha - had no idea pension pots grew interest/rose with inflation - nor did i know pensions could be passed on free of tax - iis it just the NHS pension whereby survival tax is 33%? so in your wifes case all the money in her pension could get passed on without paying any tax? thank you


"Correct, hence the importance of ensuring spouse also has a decent sized pension pot. I will always be a taxpayer, she will not. All she could do is transfer some of her tax allowance to me.I cannot under pension rules transfer any of my pension to her, excepting at death when she will get survivors pension. "

This bits slighlty confused me - how can she transfer her tax allowance to you? and why is she able to but you arent?

DC pots can be inherited free of tax if the owner dies before age 75. So yes if she were unlucky enough this would be the case. If you leave the DC pot invested then it could grow more or suffer from a crash in the market, hence the importance of staying in a DB scheme if there is one available.

DB pensions die when the holder/ survivor dies, properly managed DC pensions can be passed on, some tax free depending on age of death.

Different DB Schemes all have different rules, under my 1995 membership spouse gets 50% as survivors pension. My figures are skewed by my pension sharing order.

Either spouse can share a small part of their unused tax allowance with the other, I can't share mine as it will all be used on my pension.

There is much not taught at school but if earning adults don't understand it all and different rules change seemingly with every government how much attention will 14. 15 or 16 year olds pay to the topic?

Mrs CRV glazes over if I talk about it, she just wants the bottom line, how much now, how much and when in the future will we get.

redlfc

Flugelhorn wrote: »

When you get your pension, any income that is over the LTA amount is taxed at 25%, then it would get given to you and you would be taxed as though the whole lot was normal income ie first part @ 20% second part @ 40%

It is only if you take a very large lump sum (> 25% of the LTA) that you would pay 55% on the excess of that

This is an approx example worked for the old 95 scheme with the 1.25m protection:

Pension = 56000
Lump sum = 168000
Pension value 1288000 (so in excess of the LTA)
Pension allowed under LTA of 1.25m= 54100
Difference between actual pension paid and that allowed under LTA = 1,900
taxed at 25% means extra tax of £475
Pension then becomes £55,525 and is taxed as income

do you think a SIPP would be a better investment than a S&S LISA for someone in my position due to the tax relief especially as a likely higher earner?

though if Im already in NHS Pension then this would also add to LTA - basically trying to figure out what is the best investment plan in addition to NHS pension to bridge the gap and retire before 67