Pension Calculation

rothers

Morning all,

My wife is going to be retiring aged 55 in October this year (I am already retired). She will have a small NHS pension of around £4000 per year and she won't be taking the tax free lump sum (I don't think as it's only £12 per £1 that she commutes). She also has a SIPP that she will draw down from.

Our goal is to take out the maximum so she doesn't pay any income tax.

Taking into account the 25% tax free amount I believe that her total income can be £16,760 per year, my question is, how does that work in reality because she won't get 25% of her NHS pension tax free every year?

I had assumed that she would be paid her £4k from the NHS then take out £12,760 from her SIPP, 25% of which would be tax free (£3,190). If she didn't take her NHS pension now and just took the whole amount from her sipp she would get £4,190 tax free, another £1,000.

Is my thinking above right? Is there any way to take the full £4,190 tax free each year without having to defer her NHS pension?

Many thanks.

Marcon

rothers said:

Morning all,

My wife is going to be retiring aged 55 in October this year (I am already retired). She will have a small NHS pension of around £4000 per year and she won't be taking the tax free lump sum (I don't think as it's only £12 per £1 that she commutes). She also has a SIPP that she will draw down from.

Our goal is to take out the maximum so she doesn't pay any income tax.

Taking into account the 25% tax free amount I believe that her total income can be £16,760 per year, my question is, how does that work in reality because she won't get 25% of her NHS pension tax free every year?

I had assumed that she would be paid her £4k from the NHS then take out £12,760 from her SIPP, 25% of which would be tax free (£3,190). If she didn't take her NHS pension now and just took the whole amount from her sipp she would get £4,190 tax free, another £1,000.

Is my thinking above right? Is there any way to take the full £4,190 tax free each year without having to defer her NHS pension?

Many thanks.

If she is accessing 'uncrystallised' money from her SIPP, then 25% of the withdrawal will be tax free regardless of whether or not she is drawing her NHS pension.

hugheskevi

Personal Allowance is £12,570 p/a

If she takes an NHS pension of £4,000 (all of which is taxable income), that leaves £8,570 of Personal Allowance. She could take (£8,570 / 0.75) = £11,426 from the SIPP without incurring income tax (assuming no adjustments to allowance and no other taxable income).

QrizB

rothers said:

She also has a SIPP that she will draw down from.
Our goal is to take out the maximum so she doesn't pay any income tax.

How much is in her SIPP? Does she have a credible chance of getting it all out without paying tax, or is paying tax more-or-less inevitable at some stage? (Once she gets to SPA her state pension plus NHS pension will probably make her a taxpayer, even without any SIPP withdrawals.)

Has she checked he'd state pension forecast?

ggmf

Which NHS scheme(s) is she in?

rothers

QrizB said:

rothers said:

She also has a SIPP that she will draw down from.
Our goal is to take out the maximum so she doesn't pay any income tax.

How much is in her SIPP? Does she have a credible chance of getting it all out without paying tax, or is paying tax more-or-less inevitable at some stage? (Once she gets to SPA her state pension plus NHS pension will probably make her a taxpayer, even without any SIPP withdrawals.)

Has she checked he'd state pension forecast?

We are looking to get it all out tax free if possible, there is around £110,000 in there now and I intend to put all of her wage in there (less the NHS pension) from April to the date that she leaves in October).

Basically, we want to have enough in there (if it's not too late) to remove the whole lot (maximum available) without paying any income tax at all   

GunJack

You mention not taking a lump sum from her NHS pension, is she in a section that has no automatic lump sum? Have you checked?

rothers

ggmf said:

Which NHS scheme(s) is she in?

She is in the 2008 Scheme until either 2015 or 2022 depending on which is the best option.

rothers

QrizB said:

rothers said:

She also has a SIPP that she will draw down from.
Our goal is to take out the maximum so she doesn't pay any income tax.

How much is in her SIPP? Does she have a credible chance of getting it all out without paying tax, or is paying tax more-or-less inevitable at some stage? (Once she gets to SPA her state pension plus NHS pension will probably make her a taxpayer, even without any SIPP withdrawals.)

Has she checked he'd state pension forecast?

Sorry, I forgot to mention, she has enough years for a full state pension already.

rothers

GunJack said:

You mention not taking a lump sum from her NHS pension, is she in a section that has no automatic lump sum? Have you checked?

Neither the 2008 scheme or the 2015 scheme have automatic lump sums built in.

Dazed_and_C0nfused

rothers said:

Morning all,

My wife is going to be retiring aged 55 in October this year (I am already retired). She will have a small NHS pension of around £4000 per year and she won't be taking the tax free lump sum (I don't think as it's only £12 per £1 that she commutes). She also has a SIPP that she will draw down from.

Our goal is to take out the maximum so she doesn't pay any income tax.

Taking into account the 25% tax free amount I believe that her total income can be £16,760 per year, my question is, how does that work in reality because she won't get 25% of her NHS pension tax free every year?

I had assumed that she would be paid her £4k from the NHS then take out £12,760 from her SIPP, 25% of which would be tax free (£3,190). If she didn't take her NHS pension now and just took the whole amount from her sipp she would get £4,190 tax free, another £1,000.

Is my thinking above right? Is there any way to take the full £4,190 tax free each year without having to defer her NHS pension?

Many thanks.

You are over complicating things, you need to start by looking at each pension separately.

If she has £4,000 pension from the NHS and hasn't applied for Marriage Allowance she will have £8,570 remaining Personal Allowance to utilise.

So taking £11,426 from her SIPP would be £8,570 taxable and £2,856 TFLS.

She could take the full 25% TFLS up front is she wants but then 100% of anything else taken is taxable, including 100% of any investment growth.