NHS Pension and Redundancy

flyguy66

It looks like there is a strong possibility of redundancy just around the corner. That's not all bad, I've been planning my bridging pension for some time.

It looks like if it did happen any redundancy payment would be made in the current financial year and a very big chunk (I'm aware first 30k would be tax free) would be swallowed up by tax.

I've already maxed out on my personal allownace for this year, having expected to be hanging my boots up come April anyway. It looks like there is a retire as a result of redunadnacy option, although I'm only 58. It looks like it offers the option of using redundancy payment to enhance my NHS pension and take it at unreduced rate (or at least a smaller reduction). I'm wondering if this option takes into account the annual allowance that's already been used or not. Anybody know clear on this?

I can't see any other options for reducing tax that would be due, some of it at 60% rate 

Thanks for your thoughts in advance

Moonwolf

Fortunately for you, the annual allowance is based on the change in FULL value of your Defined Benefit pension over the year and not how much money you have put into it.  If you are just buying out your actuarial reduction and don't have any other pension then it should have no effect.

You input amount would the number on your last TRS with CPI added, the closing value would be your predicted full pension at the end of next year (different for 2015 or 1995) and the annual allowance is 16x that - with extra for a lump sum.  For the 2015 scheme you would need to increase your pension by more than £3750 to breach the allowance, be earning more than £200k.

flyguy66

Moonwolf said:

Fortunately for you, the annual allowance is based on the change in FULL value of your Defined Benefit pension over the year and not how much money you have put into it.  If you are just buying out your actuarial reduction and don't have any other pension then it should have no effect.

You input amount would the number on your last TRS with CPI added, the closing value would be your predicted full pension at the end of next year (different for 2015 or 1995) and the annual allowance is 16x that - with extra for a lump sum.  For the 2015 scheme you would need to increase your pension by more than £3750 to breach the allowance, be earning more than £200k.

Oh, sounds like there might be some hope for this route. Thanks Moonwolf. I'll look a little further

flyguy66

Moonwolf said:

Fortunately for you, the annual allowance is based on the change in FULL value of your Defined Benefit pension over the year and not how much money you have put into it.  If you are just buying out your actuarial reduction and don't have any other pension then it should have no effect.

You input amount would the number on your last TRS with CPI added, the closing value would be your predicted full pension at the end of next year (different for 2015 or 1995) and the annual allowance is 16x that - with extra for a lump sum.  For the 2015 scheme you would need to increase your pension by more than £3750 to breach the allowance, be earning more than £200k.

Hi Moonwolf, I'm just coming back to this to clarify. In this financial year I have already made contributions to my SIPP, together with my DB change in value, that takes me right up to my annual allowance. If using redundancy as above does count towards annual allowance it doesn't seem to be an option.

I'm struggling to find the information I was looking for on this. Nowhere seems to reference whether the use of redundancy payment to offset reduction in NHS pension in cases of redundancy counts towards annual allowance.

I can see you were looking at a similar question in another thread Moonwolf, I didn't see specific answers on that point in your thread. Did you get an answer elsewhere?

crv1963

I don't know the specific answer to your question but understand your concerns about Annual Allowance so felt I should point out that you have carry forward from the previous 3 years if you never used the full allowance in those years.

flyguy66

crv1963 said:

I don't know the specific answer to your question but understand your concerns about Annual Allowance so felt I should point out that you have carry forward from the previous 3 years if you never used the full allowance in those years.

Thanks crv1963. There isn't much headroom looking back. Last year's increase in the annual allowance to 60k might help soak up some of the 60% tax hit.

Sarahspangles

flyguy66 said:

crv1963 said:

I don't know the specific answer to your question but understand your concerns about Annual Allowance so felt I should point out that you have carry forward from the previous 3 years if you never used the full allowance in those years.

Thanks crv1963. There isn't much headroom looking back. Last year's increase in the annual allowance to 60k might help soak up some of the 60% tax hit.

If there is a redundancy scenario, I wonder if NHS employers have a fast track to get NHSBSA PIA calculations? Or can estimate them themselves.

Consultants who breach the AA can use the ‘scheme pays’ arrangements to pay the tax charge. I don’t really understand the pros and cons, but are you potentially better off with your redundancy payment in the NHS pension, for the inflation-proofing, even if you end up paying some tax charge?

Moonwolf

flyguy66 said:

Moonwolf said:

Fortunately for you, the annual allowance is based on the change in FULL value of your Defined Benefit pension over the year and not how much money you have put into it.  If you are just buying out your actuarial reduction and don't have any other pension then it should have no effect.

You input amount would the number on your last TRS with CPI added, the closing value would be your predicted full pension at the end of next year (different for 2015 or 1995) and the annual allowance is 16x that - with extra for a lump sum.  For the 2015 scheme you would need to increase your pension by more than £3750 to breach the allowance, be earning more than £200k.

Hi Moonwolf, I'm just coming back to this to clarify. In this financial year I have already made contributions to my SIPP, together with my DB change in value, that takes me right up to my annual allowance. If using redundancy as above does count towards annual allowance it doesn't seem to be an option.

I'm struggling to find the information I was looking for on this. Nowhere seems to reference whether the use of redundancy payment to offset reduction in NHS pension in cases of redundancy counts towards annual allowance.

I can see you were looking at a similar question in another thread Moonwolf, I didn't see specific answers on that point in your thread. Did you get an answer elsewhere?

Unfortunately I didn't get made redundant in the end.

I couldn't find anywhere where is specifically said that using redundancy money to pay off the pension doesn't affect annual allowance but logic suggests it doesn't.

The way annual allowance for a DB scheme is calculated (as I understand it) is not based on the amount of money put in but the change in value of the DB pension.

The opening amount is the value of the pension at the end of the tax year multiplied by CPI for that year (I think 6.7% for 2324).  You can use the figure from your last TRS for this.

For the 2015 scheme the closing amount is the figure from your TRS multiplied by CPI plus 1.5% (8..2%) plus 1/54 of pensionable earnings for the following year.

The annual allowance figure is the difference between these two figures multiplied by 16.  

A quirk of this means that an increase in value of £1000 for a pension being taken at 60 counts the same in annual allowance as a £1000 increase towards a pension being taken at 67 even though in "DC terms" the first is worth a lot more.

So if you take your pension early but use your redundancy just to offset the value of the actuarial reduction of a DB pension (aka capitalisation costs ) you haven't changed the annual allowance value from what it would have been had you just carried on working and left your pension in place.  

Moonwolf

flyguy66

Moonwolf said:

flyguy66 said:

Moonwolf said:

Fortunately for you, the annual allowance is based on the change in FULL value of your Defined Benefit pension over the year and not how much money you have put into it.  If you are just buying out your actuarial reduction and don't have any other pension then it should have no effect.

You input amount would the number on your last TRS with CPI added, the closing value would be your predicted full pension at the end of next year (different for 2015 or 1995) and the annual allowance is 16x that - with extra for a lump sum.  For the 2015 scheme you would need to increase your pension by more than £3750 to breach the allowance, be earning more than £200k.

Hi Moonwolf, I'm just coming back to this to clarify. In this financial year I have already made contributions to my SIPP, together with my DB change in value, that takes me right up to my annual allowance. If using redundancy as above does count towards annual allowance it doesn't seem to be an option.

I'm struggling to find the information I was looking for on this. Nowhere seems to reference whether the use of redundancy payment to offset reduction in NHS pension in cases of redundancy counts towards annual allowance.

I can see you were looking at a similar question in another thread Moonwolf, I didn't see specific answers on that point in your thread. Did you get an answer elsewhere?

Unfortunately I didn't get made redundant in the end.

I couldn't find anywhere where is specifically said that using redundancy money to pay off the pension doesn't affect annual allowance but logic suggests it doesn't.

The way annual allowance for a DB scheme is calculated (as I understand it) is not based on the amount of money put in but the change in value of the DB pension.

The opening amount is the value of the pension at the end of the tax year multiplied by CPI for that year (I think 6.7% for 2324).  You can use the figure from your last TRS for this.

For the 2015 scheme the closing amount is the figure from your TRS multiplied by CPI plus 1.5% (8..2%) plus 1/54 of pensionable earnings for the following year.

The annual allowance figure is the difference between these two figures multiplied by 16.  

A quirk of this means that an increase in value of £1000 for a pension being taken at 60 counts the same in annual allowance as a £1000 increase towards a pension being taken at 67 even though in "DC terms" the first is worth a lot more.

So if you take your pension early but use your redundancy just to offset the value of the actuarial reduction of a DB pension (aka capitalisation costs ) you haven't changed the annual allowance value from what it would have been had you just carried on working and left your pension in place.  

Moonwolf

I'll message NHS Pensions to check, if they say anything helpful or point me to any documentation, I'll post back here

Moonwolf

There is a very good Facebook Group called NHS Pensions Chat: Member-Led Discussion Group.  You might want to try and find and join that.

They do reject a lot of questions as duplicates or already answered but I've done a search and I can't see anything like this one.

flyguy66

Feedback from NHS pensions team

"You would only go over the limit if your pension benefits continued to grow. I can advise that you may need to get financial advice for this matter."
I suppose it's not continuing to grow, to Moonwolf's point, I may go down the IFA route if this comes to pass and will post feedback here