Partial Retirement & Tax

drummersdale

Hi 

I am looking to go down to 2.5 days in August when I expect my salary to be around £26,500 per annum (half my current salary) and civil service pension to be around £24,000 (haven’t had the numbers of MyCSP as yet) - my tax code is 1257 at the moment - I know I pay tax on my pension but not NI but will the personal allowance simply be applied against both salary and pension insofar as the first £12,570 of salary and pension combined will be tax free, the remainder taxed and will it be at the higher rate as the salary and pension is above £50k? I’m trying to determine if the lack of NI on the pension might compensate for the slight drop in overall income (the £53,000 salary I am currently on).

Any advice would be greatly appreciated.

TadleyBaggie

The most logical way to approach this would be to apply your full tax code to your employment and have a BR code apply to the pension, as combined you should just be under the higher rate threshold.

However since you are not going down to part time until 3-4 months into the tax year, you will presumably earn more than £26,500 in the 22/23 tax year?

drummersdale

Thanks @TadleyBaggie yes you’re right - I’m thinking more of 23/24 onwards probably when it's a more straightforward split.

Albermarle

Just think of it like having two jobs . The combined income is taxed at the same level as if it was just coming from one job.
As the previous poster says it is neater thought to just have the personal allowance against one income stream, although I believe HMRC will split it if you ask . Although their responses seem to have got slow on some issues recently.

german_keeper

My pension is BR and the full PTA allocated against salary. I didn't ask for it that way so I assume that is the default.

Put my papers in for full retirement on Thursday, last day of service 1st August, but thanks to leave accumulation Elvis will finally leave the building on 19th May. Partially retired for 3 years and the time has absolutely flown by. 4 days off and 3 on is such a difference from 5 on 2 off. Best wishes, hope you enjoy as much as I have done. 

drummersdale

Thanks @Albermarle and @german_keeper my initials are BR so perhaps it’s fate….I’m looking to do - I won’t use the acronym often afforded it - Tuesday, Wednesday and Thursday PM so effectively a 4 day weekend - a bit of trepidation but the people I know who have taken partial retirement do seem to say it works for them - I’ll have completed 40 years 8 months by August so I reckon that’s enough - plus pension increases seem to be greater than pay rises these days - or at least they have been for the last couple of years but of course that could all change. 

L9XSS

Good luck with the transition, I don’t think you will regret it, I moved to a less stressful role, 4 days on 4 days off with a lower salary, however my pension provision is good, DB and DC. I’m enjoying the work life balance, before I move to full retirement at some point. I’m 55 in May so plan on using some small pots (small pot rule) to put a big dent in my small remaining mortgage. The flight path to retirement seems to be on course.......

Albermarle

 Tuesday, Wednesday and Thursday PM so effectively a 4 day weekend - a bit of trepidation but the people I know who have taken partial retirement do seem to say it works for them -

As discussed on previous threads , whether part time /winding down works depends on your employment role .

If you have an area of responsibility that is not easily covered by others , then inevitably you end up getting involved on your days off . So part time just means less money and not a lot of plus points .

My job was not not so heavy but meant effectively being on call from 0.800 Monday to 18.00 Friday , as I had no back up .So  going part time was never a realistic option . So had to wait until a replacement could be found and then went from full time to zero .

Dazed_and_C0nfused

drummersdale said:

Hi 

I am looking to go down to 2.5 days in August when I expect my salary to be around £26,500 per annum (half my current salary) and civil service pension to be around £24,000 (haven’t had the numbers of MyCSP as yet) - my tax code is 1257 at the moment - I know I pay tax on my pension but not NI but will the personal allowance simply be applied against both salary and pension insofar as the first £12,570 of salary and pension combined will be tax free, the remainder taxed and will it be at the higher rate as the salary and pension is above £50k? I’m trying to determine if the lack of NI on the pension might compensate for the slight drop in overall income (the £53,000 salary I am currently on).

Any advice would be greatly appreciated.

You should eventually end up with tax codes 1257L (employment) and BR (pension) although it probably won't work out that way to start with as your employment income will be seen as much higher meaning you have either a D0 (40%) tax code against the pension or a BR code for the pension with a deduction made to your 1257L code to reflect the fact that at the time you start the pension your annual income will be seen as around £65k.

Once your first pension payment has been made you can use your Personal Tax Account on gov.uk to update your estimated income at the employment (i.e. 5 months at full time taxable pay rate + 7 months at part time taxable pay rate) so that further updated tax codes can be calculated.

Remember your salary isn't relevant for tax purposes, it's your taxable pay.  With the civil service using a net pay pension contribution system your taxable pay will no doubt be quite a bit less than your salary.

drummersdale

Thanks for the response @Dazed_and_C0nfused

Remember your salary isn't relevant for tax purposes, it's your taxable pay.  With the civil service using a net pay pension contribution system your taxable pay will no doubt be quite a bit less than your salary.

Is this a positive or a negative? 

drummersdale

Albermarle said:

 Tuesday, Wednesday and Thursday PM so effectively a 4 day weekend - a bit of trepidation but the people I know who have taken partial retirement do seem to say it works for them -

As discussed on previous threads , whether part time /winding down works depends on your employment role .

If you have an area of responsibility that is not easily covered by others , then inevitably you end up getting involved on your days off . So part time just means less money and not a lot of plus points .

My job was not not so heavy but meant effectively being on call from 0.800 Monday to 18.00 Friday , as I had no back up .So  going part time was never a realistic option . So had to wait until a replacement could be found and then went from full time to zero .

Thanks @Albermarle they are looking to find someone interested in a job share - whether that materialises I don’t know but yes I realise you have to lay down ground rules as I don’t intend on retiring to then work for free - I’m happy with a bit of lease lend - change my days to accommodate meetings etc in return for me switching my phone/laptop off the other days. To be honest if my organisation can’t get by with my being absent for 2 and a half days then I’ve seriously misread my standing in it!