NHS Pension advice

BaudrillardBadger

Hi. I have an NHS Pension commenced in 1988 and frozen in 2004. I then started working as a university lecturer (setting up my teachers pension). I just have some stupid questions really..... I was going to take the larger lump sum in October this year as I'm 60 and presuming monthly payments start at this point also - does this drastically affect my tax as I plan to continue to work in teaching until 64ish. Hoping for some advice and clarity - thank you.

ewaste

Your deferred rather than frozen NHS pension Normal Pension Age is 60 therefore you'd get the lump sum and annual pension together as they can't be taken separately. However unless you have a dire pressing need for the larger lump sum it's generally poor value to commute annual pension to lump sum.

The NHS pension once in payment is an income like any other therefore taxable. If your combined income from employment and pension take you into a higher tax bracket. It is relatively simple to make additional pension contributions into another pension to bring your taxable earnings back below the threshold. 

BaudrillardBadger

Hi ewaste. Thanks for your comments/advice. So in the long run a bigger lump sum isn't that beneficial then

ewaste

Generally for public sector DB schemes the commutation rate is pretty poor i.e. £1 of pension gives you £12 of lump sum. You'll get better 'value for money', less risk and stress free inflation linked income for life by taking the default lump sum. You'll still get the default lump sum of 3x annual pension to do what you like with.

Everyones circumstances are different but in my opinion if you don't need the money now then take the income. You can always pay higher AVCs into the TPS to build a larger lump sum to take when you retire fully without the poor commutation rate.

Cheese1990

Given when you joined and left the NHS you are in the 1995 scheme which means you will automatically get a tax free lump sum equivalent to 3x your annual pension. You do not commute any of you pension in the 95 scheme for the lump sum 

Flugelhorn

it will be 1995 with the automatic 3x pension lump sum - there are a few reasons to take extra lump sum (limited lifespan / very large bills to pay / breach lifetime allowance) apart from that, better to take the income and yes that pension is treated as income and taxed as such  -  carried on working when I took my pension, worked because I enjoyed it as not much fun to see every bean you earn (including working on the count at elections at £10/hour) taxed at 40% 

GunJack

Flugelhorn said:

 carried on working when I took my pension, worked because I enjoyed it as not much fun to see every bean you earn (including working on the count at elections at £10/hour) taxed at 40% 

better 60% of a tenner in your pocket than 0% of £0

BaudrillardBadger

Thank you for your advice everyone - much appreciated. I'm over 50k annually at the moment so just wanted to try a fight the system the best way I could without being battered with tax