I may shortly have the option of voluntary redundancy. The deal for people my age is early payment of pension. Obviously this will be taxable but is NI also payable?
Thanks in advance.
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I retired early, age 56.
I took 25% as a lump sum, and have a pension paid monthly.
You pay tax on your pension, but dont forget you are retiring during a tax year so your tax burden is the years earnings/tax code, ie the months you were paid salary, and the remaining months of the tax year you are paid pension.
You do not pay NI on pension, but this may effect your state pension. I have paid the max in (30 years I think) so I dont have to top it up. You may have to.
Last edited by: Zero on Sat 13 Nov 10 at 16:17
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Compulsory NI isn't payable. Take into account that you need 30 years contributions to qualify for the full state pension.
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I opted not to have early payment of pension, the actuarial reduction would have been too painful. I chose to up my tax-free lump sum enough to tide me over until the pension was due.
I found a little job that helped it all.
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Before you leave sit down and examine what is on offer.
Redundancy money - good is 1 months salary for each year served, I got 17 months for 17 years service in 1993 @ my average earnings for the previous 2/3 years. Any amount over £30K is taxable , so increase pension years rather than cash sum can be better - say you had 22 yrs service getting this made up to the number @ age 60 would be excellent.
Made redundant again 6 yrs ago with 6 yrs service - I got 9 weeks salary @ £300 roughly per week - the legal minimum. I then had to ask for car allowance - if you had a company car you got to keep it for the 3 months in lieu of notice. the legal minimum of say £300 / week (£16K approx) contrasted markedly with my earnings of £60-£85K in the previous few years.
Retired I live on markedly less, I used to spend petrol £250/mth on going to work, I used to spend £50 / week on papers, coffee, sandwiches. I used to buy 3 / 4 suits per year @ £150 ish / 20 white shirts £10-£15, ties, 3/4 pairs business shoes @ £50-£60 = £1000/£1200/ year)
Much reduced earnings BUT less expenses, less tax, No national insurance, less wear & tear on car -25,000 per year now 8,000 year. Less wear and tear on myself until recently when I took ill but I am sure that if I had been working it would not have been any different.
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I can't add much to the good advice above, except look here for information about state pension, and qualifying years:
tinyurl.com/y89x3l6
if you are short of years (unlikely) you can buy them.
Part of your calculations will likely include getting the state pension in the future - beware age for entitlement moving further away. Work towards it being at least 68.
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Thanks for the advice guys.
I'm a 51yo civil servant with just on 30 yrs pensionable service. Joined at 18 but because I moved from the 'classic' scheme accumulating in 80ths to a new scheme based on 60ths my first twenty years don't count in full.
The deal offered specifically removes the possibility of added years but there is no actuarial reduction for early payment. In effect I'd be going on half my current pay; my pension would be 25% less than if I'd done my full 40yrs service.
Looks as though I've got enough 'stamps' already for a full state pension so not paying NI contributions would significantly improve my 'take home' rate.
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errrr... I thought Gordon had increased the age from which a pension may be taken from 50 to 55. Wef April this year. I'm sorry if I've just torpedoed you. My BiL got out of Cor thing (British Steel as was) at Redcar by the skin of his teeth. He is over 50 but under 55. If he'd delayed until after April he would not have been able to claim his pension.
Don't take it personally but if this is another "one rule for civil servants, another rule for everyone else" then I'll be narked.
John
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>> Don't take it personally but if this is another "one rule for civil servants, another
>> rule for everyone else" then I'll be narked.
>>
>> John
John,
I've seen this 50/55 thing mentioned elsewhere. As I understand it the change affects people on 'personal' money purchase schemes who are prevented from accessing their fund before 55. It did not affect those with a 'contractual' entitlement to a defined benefit scheme whether in the public or private sector.
TBH the offer I mentioned seems too good to be true and far more expensive to the employer than the under 50's alternative of a lump same capped at 21 months salary. I'd not be surprised if the govt, or individual departments, made sure it was not available to those like me where it is particularly costly.
OTOH, although I've had very little briefing based on my personal circs, I've seen various official docs cross my desk which suggest that they're costing exactly that offer.
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Phew! I'd not heard that distinction. Go for it! I worked for an old fashioned patriarchal company that looked after it's employees and which granted an unabated (I believe that is the correct expression) pension from 50 onwards if you were made redundant. I carried these ts and cs with me when I was TUPEd. The new company fought the "unabated" part but lost, so your circumstances are not unique though they are VERY unusual. Thank your guardian angel and run for the door just as fast as you can.
John
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Just to add to the 50/55 debate, I was on a final salary scheme when I was made redundant when i was 43... The option was I could take a pension when I was 50... when i turned 50 I decided to hold off as the pension got a lot better the nearer to 60 I got...
Thing is they sent me a letter last year telling me I could take it April this year (aged 53) but if I didn't I'd have to wait 'til I was 55 because of these new rules... It might be different in my circumstances, but if I was you, B, I'd double check with someone who knows rather than rely on your interpretation of the website!
The sooner I can afford to retire the better... I can't wait! Good luck m8! :-)
Last edited by: hobby on Tue 16 Nov 10 at 09:24
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>> In effect I'd be going on half my current pay;
Do the HMRC limits on pensions allow half your current salary at age 51?
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>> >> In effect I'd be going on half my current pay;
>>
>> Do the HMRC limits on pensions allow half your current salary at age 51?
The offer is expressed as allowing those who've reached minimum pension age (in most cases 50) to take pension based on years served to date and without actuarial reduction. I've not had anything addressing my own circumstances but other items crossing my desk suggest projects are being costed on exit costs up to and including mine. I assume that planners have had the benefit of HMRC advice but nothing would surprise me.
If anybody is caught by such restrictions I will be. Starting at 18 and electing to transfer to the 60th's scheme means I'm particulalry well placed.
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>>Any amount over £30K is taxable
In any one tax year! If your ex-employer is willing, you can have your tax-free lump-sum spread over more than one year.
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B,
firstly, I hope you see this as good news as many do. It is a difficult and worrying time and I hope it is not patronising to say that you may find that you enjoy the future far more than you have enjoyed the recent past. Of course I don't know your financial position nor how much you enjoy your work (some do!). Much depends upon that.
I have chosen to interpret my redundancy with pension starting as early retirement (you may have noticed from my posts!) and I do not pay NI or pension contributions or higher rate tax. Consequently my net is not hugely reduced.
You should ask for a State Pension Forecast (form BR19) but remember that the contribution requirement is to be (has been?) relaxed so it is likely that if you have a shortfall then there is no point in making it up.
Good luck.
john
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Half your salary at 51 is an unbelievable deal, bite their hand off, it won't get any better. I'm 57, with some deferred benefits in a final salary scheme (now closed to further accruals). If they decide they've had enough of me this year, the reduction on the 60ths I have accrued is about 30%. At 51 it would be nearer 60%.
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>> Half your salary at 51 is an unbelievable deal, bite their hand off, it won't
>> get any better.
Pretty much my thought. SWMBO, possibly influenced by idea of me under her feet for next ten years, is less sure!!!
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Best thing I ever did.
I am now not paying higher rate tax on fair proportion of my earnings, nor NI payments, nor payments into pension. Nor I am paying to travel to work, or coffee and food at work, no smart clothes for work to pay for, My lump sum paid off the mortgage.
Net - I am about the same as I was when I was working.
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Reading this thread has made me realise that if I quit job in UK in say five years I won't have a full UK pension on retirement. Useful to know. Not that I can retire in say 5 years aged 45 and I don't plan to. But might move overseas... but had a plan to maybe rent the house out. A nearby house had a garden fire last week and the tenants seems to have been evicted and the furniture is now all in a skip!
Some very useful info here though so thanks for the contributions from me.
Anyone near Egham next week and I'll buy them a drink.
Last edited by: rtj70 on Sat 13 Nov 10 at 22:28
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>> Anyone near Egham next week and I'll buy them a drink.
>>
Thats near enough my home turf, but alas I shall be in the east Midlands from Tuesday - Friday.
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So that's a no for Monday then Zero? I assume so from the sound of it. I drive to Old Windsor tomorrow evening.
I should also be there two weeks later but only three days. So around on 29th and 30th Nov.
Last edited by: rtj70 on Sat 13 Nov 10 at 22:42
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Actually thats away from Wednesday to Friday, so yer the early part of the week might be OK.
Theres a nice pub on Englefield green - I will sort out the name
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I bought my first good car in Old Windsor. About 1973 it was.
Friary Motors, a now long gone Ford dealers.
a 1969 Ford Capri 1600 XLR. Cost me 650 quid.
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"But might move overseas.."
You can carry on paying contributions if you are abroad. Working in the Middle East I continued paying them until I had my full qualifying years (40 years in my time).
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I have paid in 36 years. You can take the excess extra and give it to the wife to build hers up.
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>> Anyone near Egham next week and I'll buy them a drink.
>>
Could be arranged.... :-)
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Well I am near Egham Monday to Thursday (drive down tomorrow and back Friday)... so anyone up for a drink on me then let me know. It would be good to put faces to names.
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>> Pretty much my thought. SWMBO, possibly influenced by idea of me under her feet for
>> next ten years, is less sure!!!
Thats a serious issue, and one we have struggled with. Nicole is still working, so I took over the cooking and cleaning duties, which was fine for a while, but then she became resentful about that and wanted to do more at home.
Tip No 1 - For marital Harmony, never still be in bed when she goes to work.
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Well I am (in bed when she goes out). And after almost 2 years, there are no complaints about my doing the cleaning. And my cooking is improving. You should have seen the dust on top of that wardrobe the first time I cleaned it!
I'm getting a new pinny for Christmas. :-)
John
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>> And my cooking is improving.
Gordon Ramsey is a McDonald burger flipper compared to me.
It all went down hill when I served up a chicken pie that had hers beat hands down.
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I have been fortunate for a while and worked either from home or a nearby office (projects vary)... so I tend to do the shopping and a lot of the cooking. My wife comes home for lunch and it will be sorted if I am at home etc. And she appreciates me doing the food shops - she hates it.
Thread drift mind ;-) But we're allowed that now aren't we?
I couldn't swear as much as Gordon Ramsey mind but do try to do most cooking from fresh ingredients etc.
So next week whilst in Egham.... I'll have to do a shop tomorrow for the week for my wife to sort out for herself. Including lunch. I don't normally plan that far ahead :-) And the youngest comes back for next weekend from Uni too. Blast.
Last edited by: rtj70 on Sat 13 Nov 10 at 22:50
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Agreed with all above, it is a stunning deal.
In terms of doing things with your time... if you feel the need, you can still do paid work while claiming your pension, provided that you can find something that suits you.
just be sure to let HMRC know ASAP if you do, or you will get hit with a big tax bill later on.
Regarding the (RTJ70?) comment above about being short of years for full state pension - I understand it is a pro-rata reduction, and currently the full Basic State Pension from 6 April 2010 is £ 97.65 per week (ignoring minimum income guarantees) for a single person.
It's not a lot, and a long way away too.
Last edited by: AnotherJohnH on Sun 14 Nov 10 at 13:18
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According to this www.hmrc.gov.uk/pensionschemes/pensions-individuals.pdf currently you can't take a pension before age 55. Unless, of course, the rules are different for civil servants!
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I don't understand tax stuff, never have, as we've both just always been very uncomplicated. Neither of us have ever even seen a tax return (famous last words).
So forgive the Noddy question - I grasp that you pay 30 years worth of NI and that entitles you to the full State pension. What happens after that? We've both now reached the full 30 years payment. Do we just keep paying out for the next 20 years too (well 18 actually)?
We're both in employer pension schemes.
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>>Do we just keep paying out for the next 20 years too
Yes, afraid so, as long as your weekly/monthly income exceeds a cerain threshold then you'll pay NI contributions. You don't pay NI on pension income.
I get get an annual letter telling me my NI contributions for the previous tax year are insufficient for them to count for that year. It tells me I can make a top-up contribution of £xxx. It then goes on to tell me I need thirty years contributions for a full state pension and to date I have thirty nine years contributions. Do I wish to pay extra?
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Thanks -as I thought it might be. Oh well, there we are. Comes with the territory I suppose.
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Cheers Snaily, that looks conclusive. Many of the government schemes are unfunded but even if that made a difference to the law I'd imagine it would be applied, in the name of fairness, as an adminstrative measure.
Back to the seek redeployment option then!!
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>> Cheers Snaily, that looks conclusive. Many of the government schemes are unfunded
All Central Govt funds are under funded - there is no fund - Old Age Pensions are paid with today's NI contributions and a top up with Taxation money. Civil Service Pensions are paid with contributions from today's civil servants and a top up of Govt taxation. Same for Teachers, NHS etc etc
Local Authority Pensions, Further Eucation Colleges, Police, Fire Brigade is a mixture of pots of money (some under and some keeping their head above water) and paying out today's pensioners with today's contributions.
I paid up to £300 per month NI deductions for many years and that money does not exist - it was spent the month it was deducted from my salary - so I am depending on you younger boys (& girls) to pay my pension in 11 months time - 13th November 2011 if I have worked it out correctly.
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>> Cheers Snaily, that looks conclusive.
It's well worth checking whether it applies to you.
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If HM Gov't offer you a scheme, then there is no doubt at all that it will be possible. Until you're offered something, no point worrying or planning.
50% of current pay for life (and wife's life) sounds like a bargain to me! Work another 15 years, and it'll reach 66%? ... and you'll have to work those 15 years too? Why would you work.
(It doesn't sound like much of a bargain to the taxpayer to abolish a quango and to continue paying the staff almost the same amount for doing nothing.)
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As you know the cost of employing someone is considerably more that salary
50% of salary is probably 30% of real employment cost.
Plus they can claim to have saved monkeys x .7% salary x 25 years NOW in this financial year.
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>> As you know the cost of employing someone is considerably more that salary
>>
>> 50% of salary is probably 30% of real employment cost.
>>
>>
There was a time when it was reckoned to cost an employer about double what you were paid.
However, the redundancies will reduce employers costs in ways which aren't immediately obvious:
it stops you getting more benefits under a scheme which is better than a new employee gets.
in the bits of industry I'm familiar with (if you can call the bits that are left an industry) the new (young) employees are on a lower salary, as well as worse pension terms.
The old guard were on 50th's or 60th's P.A. worked of final salary payable from 60, without actuarial reduction, RPI linked (up to 10% in some schemes), with 50% for spouse on demise.
The youngsters are on defined contribution (their risk against the market and a contribution from the employer - matched to 10% if you are lucky) and then trying to get an honest deal on an annuity, which are at all time lows ~ can be less than 3% P.A. if you want whistles and bells..
Push to see if they will let you go under the terms mentioned :)
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>> (It doesn't sound like much of a bargain to the taxpayer to abolish a quango
>> and to continue paying the staff almost the same amount for doing nothing.)
There are probably 30% of us over 50 who might qualify for this deal. As pointed out above I'm personally advantageously placed, others will get less. Of the remaining staff probably another 30% are agency or fixed term and get nowt. The rest get a cash payment which, while more generous than it has to be, is no compensation for loss of a career.
No more need to lease an expensive building, no more IT, no more office expenses (IT, printing etc) & no more fees and travel expenses to the expert advisers the staff support.
And for those who do get early pension the employer no longer pays employer NIC or superannuation loading.
Oh, and I think the widows pension is half again, so 25% of current pay.
I'm not moaning, I'm far better off than employees of Connaught, ROK or for that matter Pontins. It's probably going to take another 18months to run the outfit down. The legislation had a rough crossing at second reading and while not critically damaged the govt may have to make concessions on process.
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>> 50% of current pay for life (and wife's life) sounds like a bargain to me!
>> Work another 15 years, and it'll reach 66%? ...
When I retired there were HMRC limits as to how much pension you could have as a percentage of final salary, depending on certain factors. Does this still apply? Also, "final salary" depends on the pension scheme's definition ~ it may not be your actual last month's salary.
Last edited by: L'escargot on Tue 16 Nov 10 at 07:39
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>> When I retired there were HMRC limits as to how much pension you could have
>> as a percentage of final salary, depending on certain factors. Does this still apply?
"2/3rds" of final salary is or was a maximum defined benefit pension, if you put enough years in to qualify (40 years in a "60th" scheme, IE 2/3rds, you got no more for working 41 years)
Latterly I think pension schemes have been hiding behind their own rules, rather than HMRC limits.
Also schemes have been pushing the 25% tax free cash angle, as it costs them less in the long run for most people.
There is a booby trap if you take above £17K (or thereabouts - 1% of lifetime allowance) tax free and then contribute significantly more than you used to into a new pension scheme (as you might for tax reasons if you get another job). The trap is the "recycling rules", and I understand the penalties for both the pensioner/contributor and the fund which gave the lump sum in the first place are fearsome.
www.hmrc.gov.uk/manuals/rpsmmanual/rpsm04104920.htm
If your pockets are deep enough you can put huge amounts into a defined contribution scheme (currently around £1m7 "lifetime allowance", which you can exceed, but you'd loose the tax benefit above that figure).
>>Also, "final salary" depends on the pension scheme's definition ~ it may not be your actual
>> last month's salary.
>>
Again, down to scheme rules. One I know is/was average of last three years.
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>>then contribute significantly more than you used to into a new pension scheme (as you might for tax reasons if you get another job).
As a civil servant OP will not have been paying in. Secondly, the recycling rules should not apply to restrict somebody who goes back to work and starts paying into a new pension with his new earnings.
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>> As a civil servant OP will not have been paying in.
I had been under the impression that they did.
>> Secondly, the recycling rules should not apply to restrict somebody who goes back to work
>> and starts paying into a new pension with his new earnings.
You'd think not, but a "significant increase in contributions" into the new scheme compared to the old one it does rattle their cage somewhat.
www.hmrc.gov.uk/MANUALS/RPSMMANUAL/rpsm04104980.htm
There are almost certainly some errors in my postings, but there is a hole there for those ignorant of the games HMRC plays regarding pension commencement lump sums.
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>> me under her feet for
>> next ten years
>>
Hope nothing is going to happen in 10 years time, B... you should go on for a bit longer than that!!
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Tax and NI Question - Zero
