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bigduckontax, Accountant
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I am a nurse aged 54, 55 July 2015. I plan to flexibly retire

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I am a nurse aged 54, 55 July 2015. I plan to flexibly retire then and possibly go back for two days a week. I have an estimate in writing that my lump sum will be £84,000. We have heard at work that from April 2015 we may be taxed on our lump sum. Is this true? Will it be phased in? If true should I retire end of March. There are quite a few of us in this position next year. What advice can you give?

Hello, I'm Keith and happy to help you with your question. Is this lump sum a redundancy payment or a bonus? Perhaps it is your pension pot? Please elaborate.

Customer: replied 3 years ago.
Neither it is the standard lump sum recieved by nhs nurses depending on how many years you have worked and the contributions made. We get a lump sum and then a pension.
Customer: replied 3 years ago.
It's the lump sum nhs nurses get depending on contributions and years of service
The lump sum would be taxable. Add it to your emoluments in the year and you will be taxed at 20% on the first 31865, 40% thereafter. You loose your personal allowance a quid for every two you go over 100K. If your income exceeds 150K tax rises to 45%; ouch! Mark you, I can remember when, with Investment Income Surcharge, tax rose to 95%!
If this lump sum is considered part of your pension you can, under the old rules which are in course of change, take 25% tax free in cash. The new rules will allow you to take the lot, but at your marginal rate of tax; back to the paragraph above, in fact. The position on the new rules is unclear until the Finance Bill, 2014 passes Parliament. However, you will need to be 55 to do this under these new rules.
I would be inclined to wait until you are 55 before departing from the NHS. Does your union have any advice on this matter? You might get it free that way rather than having to pay fees to an independent financial adviser.
I do hope I have shed some light on your position.
Customer: replied 3 years ago.
I don't understand the lump sum has never been taxable all my colleagues recieved the lump they were predicted why are you saying it would be taxable is this a new thing?
I now see exactly what you are receiving. This lump sum is indeed tax free. The NHS advice on the subject of pensions is as follows:
'What is a standard pension?
When you retire from the NHS Pension Scheme (Amended 1 April 2008) you will get a pension and tax free lump sum. Your annual pension will be 1/80 of the best of your last 3 years pensionable pay for each year of Scheme membership. Part years of membership will also count towards your pension. This will usually be paid for the rest of your life. Your lump sum will normally be 3 times your yearly pension, but married men with membership before 25.3.72 may get a smaller lump sum.
There are some limits on the amount of membership that can count for benefits.
These are:
Not more than 40 years at age 60 if those years were worked before 1 April 2008
Not more than 40 years at age 55 for special classes* not more than 45 years altogether
You cannot be a member if you had attained age 70 by 31 March 2008 or age 75 since that date** (65 for special classes)
*Special classes are Scheme members in certain employments who joined the Scheme before 6.3.95.
Pensions taken before your normal retirement age - actuarially reduced pensions
If you take you pension before your normal retirement age (60 years old for most members of the NHS Pension Scheme, 55 years old for special classes), your pension and lump sum are reduced to take account of the fact they are being paid earlier than normal. This reduction is called an 'actuarial reduction' and is set by the Secretary of State on the advice of the Scheme Actuary.'
I am much surprised that your pensions department does not have this data off the top of its head, so to speak.
Customer: replied 3 years ago.
Thank you I am fully aware it is tax free at the moment. My actual question to you was that we have heard rumours at work and stuff in the paper not clear that FROM April 2015 it may be taxed ie my eighty four thousand could be taxed, that is what I actually wanted to know from you, have you heard that this is going to happen. When I rang our pension people they said they hadn't been advised yet. If you read my previous query it might now make more sense now. Will they be allowed to tax my lump sum after April?
We have to be careful not to combine chalk and cheese. The new proposals are aimed at money purchase pension schemes which invest subscriptions with insurance companies over the years to produce a lump sum which currently must be invested in an annuity by age 75 with levels of draw down in the interim. LA and indeed government schemes do not operate in this way, they hold the employees pots and distribute it in accordance with the rules of the scheme. These, including the NHS, are defined benefit schemes.
Whilst the proposed new rules may permit defined benefit schemes to act in a similar way to money purchase ones the matter is still in limbo until the legislation is finally by passed Parliament.
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