Partial Retirement - Tax & NI Question

drummersdale

Hello
I wonder if anyone could offer advice as I’m not sure how tax & NI is calculated on pension and salary if partial retirement is taken? If I was to receive a civil service classic pension of around £24,000 a year (age 59) & salary (for a 3 day week) of around £32,000 what would I pay in terms of tax & NI? My tax code is 1250L. I’m trying to establish what sort of monthly income I would have.
I’ve tried using a salary calculator but couldn’t find the appropriate permutation.  I know there is abatement to take into account but I’m just trying to get a rough idea. Thanks for any help.

Dazed_and_C0nfused

You only pay NI on the salary not the pension.

You will pay 20% tax on the pension (tax code BR) but will have a lower tax code than 1250L to take into account you will have to pay 40% tax on £6,000 of the pension income so try using tax code of 650L rather than 1250L.

This all assumes you have already deducted any continuing "net pay" pension contributions and your taxable salary is going to be £32,000.

If your taxable salary is going to be less than £32,000 them the tax code of 650L would be wrong.

drummersdale

Dazed_and_C0nfused said:

You only pay NI on the salary not the pension.

You will pay 20% tax on the pension (tax code BR) but will have a lower tax code than 1250L to take into account you will have to pay 40% tax on £6,000 of the pension income so try using tax code of 650L rather than 1250L.

This all assumes you have already deducted any continuing "net pay" pension contributions and your taxable salary is going to be £32,000.

If your taxable salary is going to be less than £32,000 them the tax code of 650L would be wrong.

Thanks very much - I was just doing a fairly crude guesstimate of partially retired salary as in a salary of approx £52,000 divided by 5 multiplied by 3 (day week) so more like £31,200 to be fair - supplemented by pension of around £24,000 (less tax) - I hear anecdotally that when you get to a certain point (only using Civil Service pension as a yardstick as I will have 41 years service at 59 - the majority in Classic - so nothing else as a reference point) I could “earn” as much as I do now (combining salary plus pension) but for a 3 day week.

Dazed_and_C0nfused

Your take home income can be more than when you are working full time as you will only be paying National Insurance on the wages.

drummersdale

Ahh I see - well fingers crossed that happens in my case - my wife is 5 years younger so I thought partial might be a good way to ease down gently whilst she catches up - and if I can earn broadly what I’m on now but for 3 days it seems a no-brainer.

german_keeper

When you say "salary calculator" do you mean the partial retirement calculator on the Civil Service Pensions website? I haven't used it myself as I like messing about with excel and pen, paper and calculator, that's just the way I am. But colleagues have used it and it seems to be very useful.

You want to try and avoid abatement if you can, you don't want to be working for nothing. I messed about with calculations at 24, 24.5 and 25 and eventually settled on 24.5 just avoiding abatement. My salary and pension are much lower than yours but overall I am about £100 per month better off on the bottom line due to not paying NI on pension. As a simple rough calculation just take 12% of your prospective pension figure and that's how much better off you will be. Your NI on salary will still be a full stamp, just less to pay.

It's not been pleasant being a civil servant these last 10 years but partial retirement is a wonderful thing and we are very lucky to have it. 

drummersdale

german_keeper said:

When you say "salary calculator" do you mean the partial retirement calculator on the Civil Service Pensions website? I haven't used it myself as I like messing about with excel and pen, paper and calculator, that's just the way I am. But colleagues have used it and it seems to be very useful.

You want to try and avoid abatement if you can, you don't want to be working for nothing. I messed about with calculations at 24, 24.5 and 25 and eventually settled on 24.5 just avoiding abatement. My salary and pension are much lower than yours but overall I am about £100 per month better off on the bottom line due to not paying NI on pension. As a simple rough calculation just take 12% of your prospective pension figure and that's how much better off you will be. Your NI on salary will still be a full stamp, just less to pay.

It's not been pleasant being a civil servant these last 10 years but partial retirement is a wonderful thing and we are very lucky to have it. 

Hi German Keeper 
I’m never off the CS partial retirement calculator and retirement modeller which is a source of great amusement to colleagues. The salary calculator was simply something I came across on Google as I was trying to work out how much Pension I might get plus 3 days salary but appreciate it’s just a crude measure. I was just trying to establish whether what I had been told anecdotally by some about being either no worse or even slightly better off 
following partial retirement was correct - and it seems from what you’ve said that is often the case. Yes agree completely re abatement so the number of hours worker needs to be taken into consideration but equally that could be a consideration in it being approved as it’s not a right merely a concession if asked for.  The thought of doing 3 days a week does put a spring in your step...

german_keeper

Hi drummersdale
Of course, the PR calculator will be gross not net so numpty moment from me there! 

Regarding getting approval I understand that PR is becoming a big issue for my dept (HMRC) due to lots of "older" staff with plenty of time served. The numbers tend to work out for most that working 3 days is the point just below the abatement line. In particular  people doing what I do, Tues, Weds, Thurs is very common. The difference between 5 days on and 2 off and 3 on and 4 off is massive.

I was lucky with approval for 2 reasons. Firstly I wanted PR to help look after my mum as her dementia was worsening. She had a very busy schedule of walking clubs, church cleaning, time with her 2 sisters, etc but Monday was the gaping hole for me to cover. Also in my job  Monday isn't a busy day. That is when data is collated and my bit only really starts on a Tuesday. And the monthly stuff has deadlines by certain working days of the following month so weekdays are irrelevant. So my gaffers were happy to approve.
So good luck with getting approval, you won't regret it for a minute, I'm sure.    

drummersdale

Thanks German Keeper - funnily enough the work I do is data driven so can be peaks and troughs but I'm sure (fingers crossed) it would lend itself to a 3 day role - plus there are others who can help fill in.  There are also people where I am on PR so it's not as if I would be the first.
If I work from 59 through to 62, my wife will be 57 by then so her salary should have caught up a little as she was part time term time for a fair period but has now returned full time.  She may of course not want to retire so young    Am I right in thinking that as I am in Classic I could also take my lump sum at the same time I took PR?  Not sure if the McCloud judgement will make any difference but hopefully most Terms and Conditions will be protected or perhaps even improve a little.  I will have completed 41 years service by age 59, most of which is in Classic - I start tapering to Alpha this year I think.
Anyway thanks for your responses it's great to hear from someone who is a CS and on PR and who can recommend it!

german_keeper

Yes your lump sum will be paid. Effectively you are doing 2 things, retiring and going part time at the same time. So the pension arrangements are exactly the same as if you were just retiring.

I retired at the age of 54 and 8 months with Actuarial Reduction applied to my pension and lump sum, not something I ever planned on before my mum got ill.The key for me was what happens at 60 (or hopefully a bit earlier) when I retire fully. The big difference for me actually is the lump sum. Originally I had no plans for it but now it is an integral part of my income from retirement to SPA.
Just returned from my weekly shop at Aldi and Morrisons. Used to be such a pain in the neck having to go on the way home from work but nowadays I quite enjoy it on a Friday, especially on a lovely day as it is today in my part of the world.

drummersdale

Hi German Keeper 
My plan - if you can call it that - is to go partial at 59, take the lump sum and use it to pay off some bits and pieces,  help daughter buy a little car, few upgrades to house etc. Then when my wife retires bank her lump sum (she will have around 37/38 years and a mix of full/part time) to hopefully have as a backup until state pension age. Our combined pensions should mean we are comfortable - not mega rich but a lot better off than many so we have a lot to be thankful for.  That’s the plan but as we all know life isn’t always that straightforward. Still nice to dream though.