Tax free pension

Shockingman

Hi,

My wife as worked at Tesco for nearly 31 years, 3 nights per week. She is now 61 and starting to struggle with this.

Her income gross has always been around the personal allowance figure of 12570... any overtime that she does gets taxed.

She has 2 pensions from Tesco over the years due to change of providers. 

My question is, if she were to retire and go into drawdown, could she work at Tesco for say 1 day shift, therefore supplementing her pension upto 12570? 
I know if you have a second income then the 2nd income gets taxed at full rate, but because the assumed total would  be upto 12570 then would she still be tax free?

Dazed_and_C0nfused

Shockingman said:

Hi,

My wife as worked at Tesco for nearly 31 years, 3 nights per week. She is now 61 and starting to struggle with this.

Her income gross has always been around the personal allowance figure of 12570... any overtime that she does gets taxed.

She has 2 pensions from Tesco over the years due to change of providers. 

My question is, if she were to retire and go into drawdown, could she work at Tesco for say 1 day shift, therefore supplementing her pension upto 12570? 
I know if you have a second income then the 2nd income gets taxed at full rate, but because the assumed total would  be upto 12570 then would she still be tax free?

I think you may have misunderstood some things there.

Is at least one of Tesco pensions a defined benefit (final salary) pension?  There is nothing she can "drawdown" from that, she would get a pension in accordance with the scheme rules.

She may well be able to take say the final salary pension (if that is what it is) and continue working 1 day per week.  Tesco probably have a policy around this.  In the public sector it is commonly known as partial retirement.

If she has two source of PAYE income, employment with Tesco and pension from Tesco then the new one doesn't have to be taxed in full.

HMRC can allocate her Personal Allowance between the two sources, so she might have a tax code of say 500L at Tesco and 757T for the pension.  All depends on the specific amounts she expects to get from the job and pension really.

Step one is to understand exactly what type of pensions she has with Tesco.

Stubod

..basically yes, you can "earn", (includes pension income), up to the £12,570 and won't pay any income tax....

SVaz

Yes, as long as she stays at £12570 , whatever the source of income, she won’t pay tax.
I employ my wife part time and she has the tax code 6960 so she could take an income from her pension up to her personal allowance of 11300 ( she transfers 1250 to me under marriage allowance rules) .  

SVaz

If she takes UFPLS payments from her pension,  she can get a bit more income as 25% of the payment is tax free. 

For example if she had £7500 of her personal allowance spare after her salary,  she could take UFPLS of £10000 and still pay no tax. 

That’s only if she chooses not to take a lump sum of tax free cash upfront though. 

Albermarle

SVaz said:

If she takes UFPLS payments from her pension,  she can get a bit more income as 25% of the payment is tax free. 

For example if she had £7500 of her personal allowance spare after her salary,  she could take UFPLS of £10000 and still pay no tax. 

That’s only if she chooses not to take a lump sum of tax free cash upfront though. 

Probably ( we do not for sure) the OP is referring to DB pensions, so UFPLS would not be relevant in that case.

Shockingman

Thanks for you answers. It answers my question.
There are are 2 pensions, the closed pension from 2015, which I guess is the final salary(defined benefit) at the current L&G Retirement saving plan (defined contribution)

I can see the value of the L&G fund but not the DB scheme. We requested a valuation a few years back. It would be nice to get an annual statement to see how it's doing.  I tried to request another valuation through the closed scheme pension site but for some reason it failed to submit. This isn't very helpful at all to someone wishing to look at their figures for retiring.

Dazed_and_C0nfused

Shockingman said:

Thanks for you answers. It answers my question.
There are are 2 pensions, the closed pension from 2015, which I guess is the final salary(defined benefit) at the current L&G Retirement saving plan (defined contribution)

I can see the value of the L&G fund but not the DB scheme. We requested a valuation a few years back. It would be nice to get an annual statement to see how it's doing.  I tried to request another valuation through the closed scheme pension site but for some reason it failed to submit. This isn't very helpful at all to someone wishing to look at their figures for retiring.

The "value" of the DB scheme is, for the vast majority of people not of much use.

What you really want is an uoto date figure for what the DB pension will pay each year.

If she be ameca deferred member in 2015 she would have earned say £5,000/year (made up figure) at that point and then each year after that £5,000 usually has some level of revaluation to take into account inflation. 

Sometimes that might linked to CPI and be uncapped, with other schemes it might be a maximum of say 3% per year.  Or as she still owes for Tesco it could even still be connected to her salary (her full time equivalent rate usually).

Either way whatever she built up in the scheme is likely to pay more now than it did when she stopped adding extra service in 2015.

Tesco pension admin should be able to provide something to help understand her entitlement.

Aretnap

Shockingman said:

Thanks for you answers. It answers my question.
There are are 2 pensions, the closed pension from 2015, which I guess is the final salary(defined benefit) at the current L&G Retirement saving plan (defined contribution)

I can see the value of the L&G fund but not the DB scheme. We requested a valuation a few years back. It would be nice to get an annual statement to see how it's doing.  I tried to request another valuation through the closed scheme pension site but for some reason it failed to submit. This isn't very helpful at all to someone wishing to look at their figures for retiring.

"How it's doing" isn't really a thing for a DB pension. The scheme rules will set out how much income your wife will get in retirement, based on how long she worked for Tesco and what her salary was, with increases for inflation. There is a fund with investments set aside to pay that income but whether that fund performs well or badly doesn't affect the income she'll get - it just affects the amount of extra money that Tesco will have to pay in to make sure she still gets her retirement income. In the unlikely event that Tesco and the pension fund both went bust, the Pension Protection Fund would step in to protect her benefits under the scheme. 

You can request what's known as a "Cash equivalent transfer value" which might be what you got a few years back, but for most people it's not very relevant. It's not the value of your pension as such, it's the amount of cash that the pension fund would pay you if you wanted to give up your guaranteed income for life. For most people this is an unattractive option for various reasons: 

(1) You're giving up the security of knowing that you will have a regular income for as long as you live
(2)  You can't make the trade without taking specialist financial advice, at a cost of thousands of pounds, and
(3) CETVs have fallen by about half in the last few years, not because pension funds have performed badly but because interest rates have risen making it much easier to pay someone an income from the interest on the fund. So the CETV now would almost certainly be much lower than the last one you got. So if you did want to trade her pension for a large pile of cash you've almost certainly missed the boat - now it would only be a small pile of cash for the same income.

Shockingman

Sorry,
Going back to my original question,  all we would like is a valuation of how much income my wife would get per year from the DB and DC scheme so that we can work out how much shortfall would need to be covered by a reduced shift.

I myself am I a very good job that has a DB pension for the last 35 years, of which I will be retiring next year. Our scheme sets all its figures out very clearly each year in a statement,
Pot value
Annual income if taken today
Annual income if taken at normal retirement date
Transfer value
Etc
Separate AVC account in L&G which looks similar to my Wife's current DC scheme.

I guess it's a possibility to take the income from the DB scheme, then use the DC scheme to continue as pension until a later date, as and when she wants to give up here reduced shift.

Albermarle

Shockingman said:

Sorry,
Going back to my original question,  all we would like is a valuation of how much income my wife would get per year from the DB and DC scheme so that we can work out how much shortfall would need to be covered by a reduced shift.

I myself am I a very good job that has a DB pension for the last 35 years, of which I will be retiring next year. Our scheme sets all its figures out very clearly each year in a statement,
Pot value
Annual income if taken today
Annual income if taken at normal retirement date
Transfer value
Etc
Separate AVC account in L&G which looks similar to my Wife's current DC scheme.

I guess it's a possibility to take the income from the DB scheme, then use the DC scheme to continue as pension until a later date, as and when she wants to give up here reduced shift.

Many DB schemes will not provide that level of info, and leave you largely in the dark until you actually ask to take the pension. Or at least officially request an update. Some DB pension administrators are very poor at responding as well.

For the DC scheme, the only hard info is the size of the pot of money at any moment in time. 
Any prediction of what income it will produce can only be an educated guess based on lots of assumptions about investment growth, inflation and by which method you withdraw the money.