Commuting part of NHS pension that would otherwise be subject to HRT

saucer

Hi all, 
some time since Ive posted on here. I would value your thoughts please.

I am aware that the NHS 12:1 commutation rate is normally seen as bad value . However my position is that I am due to retire next year at 58 and had been intending to take my 1995 pension (due at 60) subject to reduction of c. 10% which will be about £44k, as well as my 2015 (due at 67) subject to a big 30%ish penalty and worth about £5k after reduction. The 2015 will therefore bring me very close go the higher rate tax threshold. 

I have (or will have) about 100k in a SIPP that is going to be subject to higher rate tax as it is mostly crystalised if I have no BRT headroom left. 
What I’m now thinking is that it would make more sense to take the maximum TFLS on the 2015 portion which would give me £84k. As far as I can see that makes more sense than £5k pa from 58 before tax, or £7k from 67 subject to HRT, particularly given State Pension will also be kicking in. 

I know I am in a very fortunate position insofar as I will still have a very healthy index DB pension regardless. It has been the result of having paid a lot extra in over many years.

Any thoughts? Thanks

poseidon1

You may find it unpalatable to be paying higher rate in retirement and wish to bend over backwards to avoid such a 'terrible' outcome.

However a relative of mine was of a similar mindset 10 years ago, and had planned to commute £17k of his DB annual pension in exchange for £100k TFC, in order to stay firmly within basic rate for as long as possible.

I talked him out of it, and his £44k starting pension hit £75k this year  plus full state pension coming on stream.  He is now officially on higher pensions than he was on salary, and despite HRT charged above the basic rate threshold, has more disposal income than he knows what to do with.

By contrast, he now fully appreciates and recognises that he could never have achieved that level of inflation linked 'investment' income return had he taken the  £100k. He did take a reduced £120k instead of £220k.

saucer

poseidon1 said:

You may find it unpalatable to be paying higher rate in retirement and wish to bend over backwards to avoid such a 'terrible' outcome.

However a relative of mine was of a similar mindset 10 years ago, and had planned to commute £17k of his DB annual pension in exchange for £100k TFC, in order to stay firmly within basic rate for as long as possible.

I talked him out of it, and his £44k starting pension hit £75k this year  plus full state pension coming on stream.  He is now officially on higher pensions than he was on salary, and despite HRT charged above the basic rate threshold, has more disposal income than he knows what to do with.

By contrast, he now fully appreciates and recognises that he could never have achieved that level of inflation linked 'investment' income return had he taken the  £100k. He did take a reduced £120k instead of £220k.

Thank you. I’m certainly not saying it’s terrible to pay my share of tax. Only that I thought it made more sense to have access to the funds now especially since the break even for this part of my pension, when tax is taken into account is over 20 years from 67. Would I be wrong to hope that the value of the TFLS could match inflation over the same period?