Retiring from NHS with pension. Can I get a tax free sum from my private pension at the same time

hospitaltree

I am retiring at 60 in November and am getting an NHS pension. I also have a private pension which I would get at 65. Can I take part of this now with a tax fee lump sum

MallyGirl

What sort of private pension. If it is a normal defined contribution one then you can take a TFLS at any point from 55. 

Albermarle

Why do you say you can take it at 65 ?

Often with a normal DC pension, there will be a nominal retirement age in the system, but you can take it earlier if you want.

hospitaltree

Yes , My retirement date is when I 65. However as I am going to get my NHS Pension in November I was wondering if I could take 25% of the Private one tax free now. 

Secret2ndAccount

The answer to your question is probably yes, but you are forcing me to make some assumptions here by not giving a clear description of your older workplace pension.
If the 'other job' built up a Defined Contribution' pension - a pot of money to be gradually spent by you in retirement, then you are, as stated above, entitled to it from age 55. It's possible that it's an old pension plan (the clue is the 65 retirement age) that doesn't offer an early withdrawal facility. Think of that as a limitation of the software or the admin. You are still legally entitled to the money. You can transfer your pot to a newer pension which does then permit you to withdraw 25%. In most cases that's not hard to do. Only a problem if there were other valuable benefits to your old scheme which you would be giving up.

You will be aware that your NHS pension is not a Defined Contribution scheme - it has no pot. It has instead 'Defined Benefits' - it pays a salary for life. If your other job has resulted in another 'Final Salary' pension then there is no 25% to withdraw - just an entitlement to a pension - like the NHS scheme.
So we (you) really need some clarity on the nature of your older pension.
But probably yes.

Secret2ndAccount

I tried really hard in the previous post to answer the question that was asked. Now I have to ask: are you sure you want to take all of the 25% tax free now, leaving everything else taxable for ever more?

I’m not averse to taking some money and spending it now. I guess you need some top-up money until the State Pension arrives, then will likely need a bit less. It’s also fine to spend now, provided you are happy with your provision for later. Really, the thing I’m questioning is taking the tax free part up front.

It seems like you will always be a tax payer. If you take the 25% out now, then you will pay tax whenever you take the rest out – you are only pushing the tax bill down the road. If the remaining pot grows over the years (it could double) then you still pay tax on all of it, including the growth. If, instead, you take out ¼ tax free and ¾ taxable every year, then you preserve the 25% tax free nature of the pension. If it doubles, you get 25% of the doubled amount tax free. You are likely to end up getting more out, in total, doing it this way because you hang on to more of your tax free portion. The only thing to watch out for is keeping your total taxable income under 50k for this, your last year of working.

The other question to ask yourself is whether you need all the money now. You could take 10% or 20% of your pot now – just what you need. Then take it out gradually as you need it. Once again, this preserves the tax-free wrapper around the rest of it, saving you tax as it grows. Once you’ve moved your pot to a modern, flexible plan, you should be able to make withdrawals as and when you need them.

Note that you don’t need a lump to tide you over to age 65 which was maybe in your thoughts. The other pension, probably, can be accessed flexibly – not just at 65. And if it can’t be accessed flexibly, then you can’t get 25% out…

 

I feel obliged to note a couple of unusual circumstances where your way of taking the 25% up front might work out better:

1.      MPAA.  Once you take taxable money out of the pot, you trigger a limit on your future pension contributions. This is called the MPAA and the current limit is 4k/yr. Taking the NHS pension doesn’t trigger this, and neither does the tax free 25% - it’s taxable money from the pot that triggers it. If you don’t intend to work again, none of this matters. If you went back to the NHS and accrued more NHS pension, the MPAA wouldn’t apply. It would only affect public sector type pensions – with a pot. So if you took a public sector job and wanted to put more than 4k/yr into your pension, you couldn’t. Only you will know if there’s any likelihood of this occurring.

2.      Your unfortunate early demise.  When you die, it is very possible that your pension pot will pass, tax free to your heirs. So, if you were to meet your maker in the next few years, then your idea of taking the 25% now, and pushing the tax to later, would turn out to be right. Statistically, you are likely to make it to your 80’s, so planning on the basis of being gone in 5 years isn’t a great idea.

 

hospitaltree

Thanks for that. As I only have 16.5k in the private I may cash in anyhow. Thanks

xylophone

Have you obtained a state pension forecast?

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

What exactly does it say?