NHS pension query.

Moneymaid

So I've worked out I will get a pension of @15 k per annum  and @ 40 k lump sum when I retire this year.  What other deductions should I expect from my pension per month. Obviously national insurance to still be eligible for national pension and 20 % tax over 12.5 k. How much is national insurance  payments if only working part time ?   Basically how much should I get on average each month. Trying to work out if I can stretch to taking a slightly higher lump sum overall ? Any thoughts will be helpful, thanks in advance. 

jimi_man

You don’t pay NI on pension payments. If you’re still working you will pay it on your earnings, but pension payments are free of NI. 

Dazed_and_C0nfused

Trying to work out if I can stretch to taking a slightly higher lump sum overall ?

That is usually a very poor choice.

Have you got a quote what the cost would be?  It's often just £12 of extra lump sum for every £1 of pension that you give up.  You get the £12 once but lose the £1 every single year you are getting your pension so love to a good age and that extra £12 is very very expensive.

TARDIS

The NHS pension commutation of annual pension to lump sum is indeed 1:12 and is generally not a good idea unless you need the money now, can’t get it elsewhere or have a significantly reduced life expectancy.

The “£1” you loose annually will increase with inflation so is likely to loose you more than £12 annually in a short time if inflation predictions are correct.

TARDIS

Have you checked your state pension forecast?

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

You may need further NI credits for full state pension which you could get by working part time (is that what you are planning?), voluntary contributions or credits eg if you are an unpaid carer (including children under 12 in some circumstances)

Flugelhorn

TARDIS said:

The NHS pension commutation of annual pension to lump sum is indeed 1:12 and is generally not a good idea unless you need the money now, can’t get it elsewhere or have a significantly reduced life expectancy.

or going to breach the LTA 

TARDIS

Flugelhorn said:

TARDIS said:

The NHS pension commutation of annual pension to lump sum is indeed 1:12 and is generally not a good idea unless you need the money now, can’t get it elsewhere or have a significantly reduced life expectancy.

or going to breach the LTA 

Good point, although taking the pension earlier with actuarial reduction is often better than increasing the lump sum in the NHS pension.

Flugelhorn

TARDIS said:

Flugelhorn said:

TARDIS said:

The NHS pension commutation of annual pension to lump sum is indeed 1:12 and is generally not a good idea unless you need the money now, can’t get it elsewhere or have a significantly reduced life expectancy.

or going to breach the LTA 

Good point, although taking the pension earlier with actuarial reduction is often better than increasing the lump sum in the NHS pension.

it is indeed - the problem I had with taking the pension early was the need to leave one of my  jobs to do so (which I didn't want to do at the time) - got to 60 and realised that I would get more in pension that the particular job so that made the decision

Moneymaid

Thanks, the commutation is £12 for every £1. What I wondered though was that as I will pay 20 % tax on everything over £12.5 k would it not be beneficial to bring  my pension down to that amount and increase my tax free lump sum. 

Sorry im a bit dim...  also dont understand the point re taking the pension earlier and actuarial reduction being better than increasing the lump sum...???

Thanks again.

Dazed_and_C0nfused

Your are correct about the tax element but it's the basic offer which is poor value.

Say you agree to give up £1,000 in return for £12,000 extra (tax free) lump sum.

After year one you have £12,000 and have missed out on £800 pension (after tax).

After year two you have £12,000 and missed out on say £1,640 (after tax and assuming 5% annual increase on the pension).

After year three you have £12,000 and missed out on say £2,500 (after tax and assuming c2% annual increase on the pension).

And so on.  As each year passes what was £1,000 pension (pre tax) would have been increased by the NHS annual pension increase.  So even taking into account the tax element it wouldn't take that many years before you are losing a lot more than £1,000 annual pension each year for the upfront benefit of having the £12,000.

You could easily live for another 30-40 years so that £12,000 could end up costing you far more in lost pension.

TARDIS

Moneymaid said:

Sorry im a bit dim...  also dont understand the point re taking the pension earlier and actuarial reduction being better than increasing the lump sum...???

Thanks again.

Sorry to confuse you - that was for people going over the LTA which unless you have significant other pensions doesn’t apply to you.