NHS Pension - Ill Health Retirement - Tax Implications?

KerryL

My NHS ill health retirement application has recently been approved, and I’m now weighing up whether to take a larger lump sum with a smaller pension or the other way around.

I’m unsure about any tax implications. My employer says the lump sum is tax-free, as the limit is £263,000, which I wouldn’t exceed.

I’m thinking about going back to work part-time (currently work full-time), but I’m wondering if there would be tax implications. I’m currently a basic rate taxpayer earning under £50k, but if I took the lump sum and added it to my wages, it would push me over the £50k threshold for 40% tax deductions.

Is this right or would it not affect me?

Ayr_Rage

Ignore the lump sum for income tax.

You will be taxed on your monthly pension amount and any income from work.

DRS1

Stupid question but could doing any work even part-time have an impact on the ill health early retirement pension? For example was it granted because you couldn't do ANY work or was it granted because you couldn't do CERTAIN work.

Marcon

OP, it's probably worth revisiting the answers you got when you asked about this last year:

https://forums.moneysavingexpert.com/discussion/6586729/nhs-pension-advice

KerryL

https://forums.moneysavingexpert.com/discussion/comment/82144737#Comment_82144737

Thank you, however it doesn't really help with my current query.

KerryL

https://forums.moneysavingexpert.com/discussion/comment/82143780#Comment_82143780

I was deemed unfit to do my current job (very demanding role), so I am taking a part time role which i can do flexibly around my health condition.

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82145516#Comment_82145516

So that sounds like the Tier of ill health early retirement where they don't mind if you get another job.

If the other job is in the NHS then you might want to see what is happening about "abatement". I think that was abandoned but I don't know if that is permanent or if it might come back.

KerryL

https://forums.moneysavingexpert.com/discussion/comment/82145557#Comment_82145557

Job is not in the NHS, so assume this won't affect me.

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82146574#Comment_82146574

No I don't think it ever applied for a job outside the NHS.