voluntary exit

velucky

Hi, long time lurker here and would like some advice, please. I have been offered voluntary exit and I am considering my options. I am a member of Classic (civil service final salary pension) and by the date of exit I will be 58 years 11 months old. NRA is 60.
I am currently 20% tax payer but will get 22K over the 30K tax free, i.e. 52K total. I would have to pay tax on the 22K plus over 2 months of PILON. I have worked part time for the last 14 years so my pension will not be terribly good. If I took it now I would lose another 5% for taking it early. So what I am am wondering is should I defer my pension till I am 60, or buy out the reduction with my compensation payment?
Any thoughts, please. thank you.

xylophone

https://www.google.com/search?q=civil+service+redundancy&oq=civil+service+redundancy&aqs=chrome..69i57j0l5.13570j0j8&sourceid=chrome&ie=UTF-8

Had you planned to retire at age 60 anyway?

Will the compensation over £30,000 be enough to buy out the reduction completely?

Have you obtained a state pension statement?

https://www.gov.uk/check-state-pension

Audaxer

velucky wrote: »

Hi, long time lurker here and would like some advice, please. I have been offered voluntary exit and I am considering my options. I am a member of Classic (civil service final salary pension) and by the date of exit I will be 58 years 11 months old. NRA is 60.
I am currently 20% tax payer but will get 22K over the 30K tax free, i.e. 52K total. I would have to pay tax on the 22K plus over 2 months of PILON. I have worked part time for the last 14 years so my pension will not be terribly good. If I took it now I would lose another 5% for taking it early. So what I am am wondering is should I defer my pension till I am 60, or buy out the reduction with my compensation payment?
Any thoughts, please. thank you.

I would have thought it would be best to leave the pension until you are 60, and use part of the lump sum for living expenses, as you have only just over a year to wait. You just have to work out how long it would take to recoup the 13 months' spend from the lump sum to see if it's worthwhile.

Apodemus

Is there an option to do both? Use the £22k to buy additional pension and defer drawing it until NRA, living off the £30k in the meantime?

I’m working on the assumption that (if you have been working part-time and have a low pension) your current pay is not huge and that £30k tax-free to spend over 18 months might not be that much of a reduction. Apologies if I have got this wrong!

velucky

Thank you for your replies. There are 4 choices: 1.take only compensation and defer pension till my 60 birthday.
2. take pension on reduced terms,
3. buyout the reduction
4 buy added pension
I am mulling over and just struggle to make a decision, I am leaning towards no. 1 as it seems the simplest and I can easily live on the compensation payment till August 2020. However, as my pension will only be about half of my current earnings maybe I should buy some added pension. Would this be tax efficient?
thanks

Audaxer

velucky wrote: »

Thank you for your replies. There are 4 choices: 1.take only compensation and defer pension till my 60 birthday.
2. take pension on reduced terms,
3. buyout the reduction
4 buy added pension
I am mulling over and just struggle to make a decision, I am leaning towards no. 1 as it seems the simplest and I can easily live on the compensation payment till August 2020. However, as my pension will only be about half of my current earnings maybe I should buy some added pension. Would this be tax efficient?
thanks

You mention the £52k the Voluntary Exit Compensation payment, but I think with the Classic Scheme you also automatically get a tax free pension lump sum as part of the pension. However you can give up all or part of the lump sum for an increased pension. See link https://www.civilservicepensionscheme.org.uk/members/classic-scheme-guide/
and the section headed 'Choices on retirement' which says:
"When you take your pension you may be able to give up all or part of your lump sum in return for an increase in either your own pension, or in your own pension and your widow’s, widowers’ or surviving civil partner’s pension. The Scheme Administrator (MyCSP) can give you more information. If you decide to exchange all or part of your lump sum, you must make your decision before your last day of service. If you left service early with preserved benefits, you must make your decision before your pension comes into payment at pension age. Once we start paying your benefits, you cannot change them."

Just to clarify your Voluntary Exit Compensation payment is separate to the pension tax free lump sum. It seems to me the best option would be to take the full £52k Voluntary Exit payment and leave the pension until you are 60, but also ask in you can exchange the tax free pension lump sum for an increased pension at 60.

xylophone

Have you obtained a state pension forecast?

velucky

Hi,
Just an update. I have decided to buy out the actuarial reduction with my compensation lump sum. Just a word of warning to anyone working part-time, taking a career break etc. over the years, do check your pension statement and get a record of non reckonable absences from your HR.
My 2018 Pension statement was over optimistic and it turns out I will be actually getting less pension as previous statements were wrong and did not take account of some absences. I also spotted that 12 days I worked in 2003 were not added to my record. I know it is not much but it all helps. Anyway I am leaving work next week at the age of 58 years and 11 months. Hope to live quite frugally although my husband is still working.

gorillagirl

Can I ask have you had the compensation declaration form to fill in? I am finding the tax questions rather ambiguous!