Take pension and carry on working - income tax query

techwatcher

atush wrote: »

Why arent you concerned as she will lose up to 50% of her pension for taking it 10 years early? Esp if she will be getting a redudancy payment? Wil the payment be in excess of 30K?

Hmm...that's made me think. We will get some illustrations for taking the pension at 55 and at 65 to understand the difference it will make in her particular case.

Redundancy payment will be under £30k so will be tax free.

cloud_dog

I'm quite confused as to why the need to take the pensions dead on 55, especially with the redundancy payment in the offing. Obviously there may well be reasons that you haven't explained.

techwatcher

cloud_dog wrote: »

I'm quite confused as to why the need to take the pensions dead on 55, especially with the redundancy payment in the offing. Obviously there may well be reasons that you haven't explained.

The thinking behind it is that my wife dislikes her job and doesn't really want to do it any more. However we would still like a monthly income. She could cease work at 55, take her pensions and receive more money each month from the pensions than she would when working, so it seemed something of a no brainer.

mgdavid

techwatcher wrote: »

Hmm...that's made me think. We will get some illustrations for taking the pension at 55 and at 65 to understand the difference it will make in her particular case.

Redundancy payment will be under £30k so will be tax free.

You shouldn't need to get illustrations to find this out. The Actuarial Reduction is a per annum percentage and will be found in the Scheme Rules. If you haven't got a printed copy (you should have) then they may be available online, or phone the Scheme administrators and they will post one to you.

Dox

techwatcher wrote: »

Hi,
My wife reaches 55 in April and was planning to cease work and take her two pensions, a defined benefit scheme and a separate defined contribution pension. She has now heard that she will be made redundant sometime after May this year and she stands to receive a decent redundancy package if she stays.

We understand that if she chooses to stay she can take her pensions and carry on working but how does income tax work in these situations?

That's the bit I'm not quite understanding. If she doesn't like her job and wants to quit, why would she go on working once her pensions are in payment - or are you just talking about a month or two pending redundancy? If the latter, why would she take her DB pension before she leaves the current employer, when she could build up a little more service (very little, but still some) and the early retirement factor would be a little lower (again, a very little).

Taking the pension early (always assuming she gets employer and/or trustee consent) might jeopardise the whole redundancy payment, so she does need to be absolutely clear about all aspects of this.

Don't forget there could be a double whammy if she retires early: not only is there an actuarial reduction because her pension is being paid early, but she also won't get the extra period of service she might have built up if she stayed in service until the scheme's normal retirement age.

Some sort of favourable pensions deal is often available for those old enough to take their pension at the time they are made redundant, so the fact your wife turns 55 in April could be very helpful.

jamesd

If there's a desire for a lump sum it's usually best to take it from personal pensions instead of taking a defined benefit pension early.

Keep_pedalling

techwatcher wrote: »

The thinking behind it is that my wife dislikes her job and doesn't really want to do it any more. However we would still like a monthly income. She could cease work at 55, take her pensions and receive more money each month from the pensions than she would when working, so it seemed something of a no brainer.

Yes but as she is going to be made redundant she knows that she will soon be shot of that job. She would be mad to touch this pension until she knows what terms of her rudandancy are going to be.

techwatcher

Dox wrote: »

That's the bit I'm not quite understanding. If she doesn't like her job and wants to quit, why would she go on working once her pensions are in payment - or are you just talking about a month or two pending redundancy? If the latter, why would she take her DB pension before she leaves the current employer, when she could build up a little more service (very little, but still some) and the early retirement factor would be a little lower (again, a very little).

Thanks Dox. Redundancy is likely to be just a few months away and our thinking was that delaying taking the pension would make little difference to the pension payments so we may as well have the monthly income.

Dazed_and_confused

It may well make little difference.

Particularly in comparison to the likely near 50% loss taking it 10 years before normal pension age will attract :eek:

mgdavid

Keep_pedalling wrote: »

Yes but as she is going to be made redundant she knows that she will soon be shot of that job. She would be mad to touch this pension until she knows what terms of her rudandancy are going to be.

^^ this ! .