Taking a defined benefit pension when due at 60

ChequeBookGerry

I have searched for the answer to this but not finding it - honest!  My wife has two small pensions:

• Teachers - Annual £2168 and lump sum £6559
• NHS - Annual £3252 and lump sum £9757

She has a very part time job earning about £1000 pa.

Both of these pensions are due at 60 and she is 60.

So, I have a couple of questions, please?

1) Given that they are defined benefit pensions and index linked, but the % is tiny (1.7% for 2024/5 I read) is he she better taking as much as she can now and sticking it in a tracker in an ISA.  (I work so we don't need the cash.)
2) Obvs she does not want to pay any tax so she presume she would take one lump sum this tax year and one next (even with the 25% freebie).  Is the date that she claimed it on the one for tax purposes or the one where she physically gets the cash.  I hear that the NHS one is really slow to pay, so likely that would be May 2025 for payment, so best claiming the teachers one now and hoping they are faster...

Thanks all.

molerat

The lump sums are tax free so it doesn't matter when she takes it.  What do you mean by taking as much as she can ?  She won't be able to take either of the pensions as a cash lump sum.

Dazed_and_C0nfused

ChequeBookGerry said:

I have searched for the answer to this but not finding it - honest!  My wife has two small pensions:

• Teachers - Annual £2168 and lump sum £6559
• NHS - Annual £3252 and lump sum £9757

She has a very part time job earning about £1000 pa.

Both of these pensions are due at 60 and she is 60.

So, I have a couple of questions, please?

1) Given that they are defined benefit pensions and index linked, but the % is tiny (1.7% for 2024/5 I read) is he she better taking as much as she can now and sticking it in a tracker in an ISA.  (I work so we don't need the cash.)
2) Obvs she does not want to pay any tax so she presume she would take one lump sum this tax year and one next (even with the 25% freebie).  Is the date that she claimed it on the one for tax purposes or the one where she physically gets the cash.  I hear that the NHS one is really slow to pay, so likely that would be May 2025 for payment, so best claiming the teachers one now and hoping they are faster...

Thanks all.

1.  What do you mean by taking as much as she can now?  do you understand how DB pensions work 🤔

2.  Aren't the lump sums you refer to the standard PCLS's?  Where is tax relevant for those?

Or is she planning on giving away some of her pension in return for tax free cash 😳.  If the latter (which I suspect isn't the case) has she taken into account the awful commutation rate into account.  She could well be getting these pensions for 40+ years.

Keep_pedalling

She should not delay claiming either pension and she won’t be paying any tax on the lump sums or the income. 

molerat

And a good idea could be to take the annual pensions, put £2880 into a SIPP each year, withdraw £3600 all tax free and pay that into a savings account.

hyubh

ChequeBookGerry said:

I have searched for the answer to this but not finding it - honest!  My wife has two small pensions:

• Teachers - Annual £2168 and lump sum £6559
• NHS - Annual £3252 and lump sum £9757

She has a very part time job earning about £1000 pa.

Both of these pensions are due at 60 and she is 60.

So, I have a couple of questions, please?

1) Given that they are defined benefit pensions and index linked, but the % is tiny (1.7% for 2024/5 I read)

Assuming both pensions are deferred, they have been increasing by CPI. The last pensions increase on that basis was 6.7% - not quite sure where you've got the 1.7% figure from...?

That said, past NPA (normal pension age), matters depend:
1. Some schemes apply a late retirement factor (LRF) or actuarial increase, i.e. the pension that begins to be paid on retirement (DOR) is higher than what it would have been at that date if it had been started at NPA.
2. Others treat the formal retirement date as still NPA, and make a backpayment at DOR. Good to the extent the member doesn't lose pension payments, but still potentially suboptimal for tax reasons.
3. Others still neither apply an LRF nor pay backpayments. Obviously this is the worst of all worlds.

My guess is your wife's TPS pension is an example of (1) and her NHS pension is an example of (2). However, she should check with the respective administrators to be sure.

is he she better taking as much as she can now and sticking it in a tracker in an ISA.  (I work so we don't need the cash.)

Probably not, given the commutation rate (12/1) is not good.

2) Obvs she does not want to pay any tax so she presume she would take one lump sum this tax year and one next (even with the 25% freebie).

Not quite sure what you mean. IIRC neither scheme allows commuting past the 25% 'capital value' test (i.e. the scheme lump sum limit [standard + by commutation] = the tax free limit in covering pensions legislation).

Purplelady65

Re the NHS pension there is no benefit to not claiming it now assuming the pension is in the 1995 scheme and not the 2015 scheme? 

Flugelhorn

hyubh said:

ChequeBookGerry said:

I have searched for the answer to this but not finding it - honest!  My wife has two small pensions:

• Teachers - Annual £2168 and lump sum £6559
• NHS - Annual £3252 and lump sum £9757

She has a very part time job earning about £1000 pa.

Both of these pensions are due at 60 and she is 60.

So, I have a couple of questions, please?

1) Given that they are defined benefit pensions and index linked, but the % is tiny (1.7% for 2024/5 I read)

Assuming both pensions are deferred, they have been increasing by CPI. The last pensions increase on that basis was 6.7% - not quite sure where you've got the 1.7% figure from...?

1.7% is the next increase in April (CPI for last September)

Flugelhorn

@ChequeBookGerry - simple really, just take what is on offer (25% TFLS for both and then the monthly payments for both at the age of 60 and don't wait a month more or it will be lost ) 

the index linking is a bit marginal this year but a couple of years ago was 10.1% 

hyubh

Flugelhorn said:

hyubh said:

ChequeBookGerry said:

I have searched for the answer to this but not finding it - honest!  My wife has two small pensions:

• Teachers - Annual £2168 and lump sum £6559
• NHS - Annual £3252 and lump sum £9757

She has a very part time job earning about £1000 pa.

Both of these pensions are due at 60 and she is 60.

So, I have a couple of questions, please?

1) Given that they are defined benefit pensions and index linked, but the % is tiny (1.7% for 2024/5 I read)

Assuming both pensions are deferred, they have been increasing by CPI. The last pensions increase on that basis was 6.7% - not quite sure where you've got the 1.7% figure from...?

1.7% is the next increase in April (CPI for last September)

Oh yes, re-reading I suppose by '2024/5' the OP did indeed mean the upcoming April 2025 increase.

Depending on situation, assuming the Teachers pension will attract an LRF, it may still be reasonable to leave that one if it's not needed.

Flugelhorn

hyubh said:

Flugelhorn said:

hyubh said:

ChequeBookGerry said:

I have searched for the answer to this but not finding it - honest!  My wife has two small pensions:

• Teachers - Annual £2168 and lump sum £6559
• NHS - Annual £3252 and lump sum £9757

She has a very part time job earning about £1000 pa.

Both of these pensions are due at 60 and she is 60.

So, I have a couple of questions, please?

1) Given that they are defined benefit pensions and index linked, but the % is tiny (1.7% for 2024/5 I read)

Assuming both pensions are deferred, they have been increasing by CPI. The last pensions increase on that basis was 6.7% - not quite sure where you've got the 1.7% figure from...?

1.7% is the next increase in April (CPI for last September)

Oh yes, re-reading I suppose by '2024/5' the OP did indeed mean the upcoming April 2025 increase.

Depending on situation, assuming the Teachers pension will attract an LRF, it may still be reasonable to leave that one if it's not needed.

good point re possible LRF for teachers pension - forgot that might be the case. still kicking myself for delaying my NHS pension by a month (the job I gave up to take it paid less than the pension grrrr)