Taking a defined benefit pension when due at 60

crv1963

As has been said the NHS Pension is likely 1995 Scheme so every month not claimed is a month income lost.  You may also want to check that these forecasts are current and not older ones.

Tax free for the lump sums and these can be increased by giving up pension income, for the NHS every pound of pension given up adds £12 to the lump sum and is considered poor value for money by most, however that would be a decision for your wife depending on her/ your circumstances. I don't know the rates for the Teachers Pension.

ChequeBookGerry

Thanks all.  I've always equated private pensions with government ones, but you are right, at least the Teachers lump sum is tax free and probably the NHS one so no point in delaying.    Bigger issues here, than just a bit tax planning, then in that I don't know if we've missed out on some annual payments by delaying as her 60th was last year, but we'll see....

ChequeBookGerry

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...?

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).

Thanks.  I've just looked in the documents and at least the Teachers lump sum is deffo tax free and the NHS one (although not on the documentation I have) should be alslo. She has just asked both organisations to start paynent process.  The interweb says that for both the NHS and Teachers pension payments should be backdated to the NRA which is a relief.  I now just need to be careful to steer all the payments into an ISA and not to Vinted.com...

Dazed_and_C0nfused

ChequeBookGerry 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...?

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).

Thanks.  I've just looked in the documents and at least the Teachers lump sum is deffo tax free and the NHS one (although not on the documentation I have) should be alslo. She has just asked both organisations to start paynent process.  The interweb says that for both the NHS and Teachers pension payments should be backdated to the NRA which is a relief.  I now just need to be careful to steer all the payments into an ISA and not to Vinted.com...

Once those lump sums hit the bank account it'll be Harvey Nichols and Selfridge's that will see the extra custom 😉

Flugelhorn

NHS lump sum is definitely tax free and looks like they will back date to NRA if you haven't worked for the NHS since then. 

https://faq.nhsbsa.nhs.uk/knowledgebase/article/KA-04594/en-us

SacredStephan

Flugelhorn said:

@ChequeBookGerry - simple really, just take what is on offer (25% TFLS for both ...

Both these pensions are DB so there is no "pot" to calculate 25% of. The PCLS of the NHS pension is 3 x annual pension and it's tax free. I've no knowledge of the Teachers pension.

Flugelhorn

SacredStephan said:

Flugelhorn said:

@ChequeBookGerry - simple really, just take what is on offer (25% TFLS for both ...

Both these pensions are DB so there is no "pot" to calculate 25% of. The PCLS of the NHS pension is 3 x annual pension and it's tax free. I've no knowledge of the Teachers pension.

ah yes of course - I was addled and thinking back to having to calculate the "virtual pot" ie 20x the pension + the lump sum and actually being allowed to take 25%  of that tax free provided you were inside the LTA .. all too long ago