Published: 05:01 EST, 18 December 2017 | … That helps us fund This Is Money, and keep it free to use. NHS Pensions has no discretion and must deduct this tax charge from the lump sum. Would you buy your local pub? While it may be appealing to clear your mortgage, it is worth considering whether the interest on your NHS pension contributions is higher than the income you would receive by keeping that money invested in your pension. Some links in this article may be affiliate links. Steve Webb replies: The short answer is that there is a way to access the lump sum from your first pension and leave the rest of the money invested, but it has to be moved first to a different sort of product. Deadline looms for landlords to run safety checks or face a £30k fine: What is an EICR and when do properties need one? If you are writing to Steve on this topic, he responds to a typical reader question. We do not allow any commercial relationship to affect our editorial independence. The maximum lump sum is approximately 4.28 times your pension. You can read more about the different sorts of drawdown account on the Government's Pensionwise website here, but in brief, with a flexi-access drawdown account you can take your 25 per cent tax free at once and then leave the rest to be invested. Instead you have to transfer the money into something called a 'drawdown' account from which it is possible to take some money out now and leave the rest invested. The comments below have not been moderated. As you are still some years from retirement it is a good idea to stay invested with the rest of your money as long as you can, especially as your money may need to last you for several decades in retirement. There are two reasons for this. Is this correct? It includes links to Steve's several earlier columns about state pension forecasts and contracting out, which might be helpful. In your case, there are good reasons why you are likely to want to go for the first of these two and only take the tax-free cash for now. Can I take my 25% tax-free lump sum from one pension pot and leave my other alone for later? The lump sum will be around 2 x annual earnings. It includes links to Steve's several earlier columns about state pension forecasts and contracting out, which might be helpful. I am 58 and have two pensions, one from a previous employer and one from my current employer. But as regards defined contribution pensions, under current rules you are not able to take part out and leave the rest behind. This depends entirely on your personal circumstances, but there are factors that you should consider. Just what on earth do 'UFPLS', 'decumulation', 'MPAA' or 'flexi-access drawdown' mean? This is a restriction on the amount that you can put *into* a pension whilst benefiting from tax relief. Published questions are sometimes edited for brevity or other reasons. If you would like to ask Steve a question about pensions, please email him at pensionquestions@thisismoney.co.uk. If you click on them we may earn a small commission. By pressing subscribe you are happy to receive occasional messages from us via email to enable us to share with you the latest financial news and opinion. Additional Pension is index linked both before it comes into payment and also when the actual pension is being paid. Former Pensions Minister Steve Webb is This Is Money's Agony Uncle. Please include a daytime contact number with your message - this will be kept confidential and not used for marketing purposes. A lump sum of twice the staff member’s annual earnings and continued survivor entitlements will be provided in the event of a death in service. Provided your lump sum is no more than 25% of your pension fund value or 25% of your lifetime allowance, whichever is lesser, any lump sum taken up to this level is tax free. If, instead, you wait until you are no longer in paid work before taking taxable cash then you should find that you pay much less tax overall. This is Money is part of the Daily Mail, Mail on Sunday & Metro media group, Get a discount code to save on your internet security, Listen to podcasts and books for less with these offers, Get the ultimate broadband and entertainment bundle, Get great deals on existing and new plans, Have a clean house and save money with these offers, House prices to see £10,000 average increase this year, says heavily revised forecast - and one region is predicted to SURGE 30% by 2025. As the method of measuring the capital value of your pension against the lifetime allowance is (pension x 20) plus your lump sum, taking a larger lump will reduce the overall capital value. We are no longer accepting comments on this article. As a result, pretty much any taxable withdrawal you took now from your pension fund would be taxed from the first pound and a larger withdrawal could even take you into a higher tax bracket. Additional Pension payments made on or before 31 March 2011 attract pre-payment increases in line with the Retail Prices Index (RPI) and in-payment increases in line with the Consumer Prices Index (CPI). Busting the myths and half-truths about the NHS…, Covid-19 financial support for care workers. Adult dependent’s pension Most people can put £40,000 a year into a pension but the MPAA limit is just £4,000. However, we will help you to make informed choices and avoid costly mistakes. Also, although an Isa is tax efficient, low interest rates mean your savings will still be ravaged by inflation, which you can potentially avoid through making higher investment returns over the long term. We will not share your details with anyone else. Unlike a pension, an ordinary bank or savings account doesn't shield your money from the taxman. If there is a chance that between now and pension age you might want to contribute more than this per year into a pension (including any money that your employer contributes) and benefit from tax relief then you will want to avoid triggering this draconian limit which would happen if you were to accidentally take taxable cash out of your first pension. 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I discussed the pros and cons of moving and accessing a 'salary-related' or defined benefit pension in a previous column here and wrote a guide about it which you can find here. He is ready to answer your questions, whether you are still saving, in the process of stopping work, or juggling your finances in retirement. I didn't want to do this as I am working on until retirement age and would have liked the 75 per cent to remain until it matures. As mentioned above, it may be possible to take a larger lump sum by foregoing part of pension. We do not write articles to promote products. Any further withdrawals would then be taxed. 6 ... then you may be able to have your pension and retirement lump sum from us paid as a one off payment, ... any retirement lump sum. First of all, as soon as you take taxable cash out of your pension you immediately trigger something called the Money Purchase Annual Allowance (MPAA). If you have a question about state pension top-ups, Steve has written a guide which you can find, Land Rover Defender pulls transporter carrying seven SUVs, Rebuild of a super-rare 1985 MG Metro 6R4 on Car SOS, Renault 5 EV prototype will look like the 1980s rally car, Land Rover unveils the fastest and most powerful Defender V8 yet, Porsche's eFuel could dramatically cut CO2 emissions of cars, Mercedes announces smart home system to control home from your car, 1972 Lamborghini Miura SV sold for 11% above market value, Can Scottish Mortgage keep climbing? Pensions are complex in terms of tax relief and the different options to access your funds where you have private pension arrangements too. Pensions weren't really designed with this scenario in mind. Option 1: Leave it invested in your pension for when you need it. Following a long career caring for others, your retirement should be a time when you are able to enjoy and live life to the full. Your own health may be a factor. Read... What you need to know about pensions in 2019: How the Brexit... Quarter of a million NHS staff have opted out of pension... Britain's state pension hotspots revealed: How more than a... What you need to know each week: Listen to the This is Money podcast, e receives many questions about state pension forecasts and COPE – the Contracted Out Pension Equivalent. If the capital value of your NHS benefits is less than £6,000 we will write to you to explain the amounts We can provide independent advice to help you to maximise your NHS Pension lump sum and retirement income to ensure you maintain the standard of living you’ve worked so hard to achieve and to help create greater opportunities for a more rewarding financial future. If it isn’t great, you may prefer to take a bigger lump sum, which could be given to your children, for example, as in the event of your death the benefits paid to your surviving spouse, partner or dependents is based on the original pension, not the reduced one. The views expressed in the contents above are those of our users and do not necessarily reflect the views of MailOnline. Steve Webb: Find out how to ask the former Pensions Minister a question about your retirement savings in the box below. TPAS can be found here and its number is 0800 011 3797. SCROLL DOWN TO FIND OUT HOW TO ASK YOUR PENSION QUESTION. You can nominate that your spouse, registered civil partner or qualifying nominated partner receive a lump sum when you die. Steve will do his best to reply to your message in a forthcoming column, but he won't be able to answer everyone or correspond privately with readers. What is the lifetime allowance? You may be interested to know that the regulator, the Financial Conduct Authority, has expressed concern about people cashing in the whole of their pension pot simply to get their hands on their tax free cash and then putting the rest of the money in a current account or a cash Isa paying very low interest, rather than leaving the money invested. Nothing in his replies constitutes regulated financial advice. Equity release is, in a nutshell, a way to unlock the value of your property and turn it into a cash lump sum. What this means in essence is that the whole of your pension pot goes into an account and each withdrawal is then a chunk of cash which is 25 per cent tax free and the rest taxed. 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As you rightly say, once you reach the age of 55 you can indeed access the money in a pension pot if, as I am assuming from how you describe it, that we are talking here about a 'pot of money' or defined contribution pension. I am 58 and have two pensions, one from a previous employer and one from my current employer. The NHS Pension Scheme provides lump sum and pension benefits in the event of your death, which are detailed below: Lump sum on death. You will be able to opt out of these messages at any time and we always provide an option to do so in our communications with you. For example, if you had £100,000 and took £20,000 out you'd get £5,000 of it tax-free, the rest would be taxed at your current rate. The remaining pension fund is taxed at your marginal rate of income tax when it is drawn. As a result, this will reduce the lifetime allowance tax payable. Content correct at time of writing and is intended for general information only and should not be construed as advice. You can do this via a number of policies which let you access – or 'release' – the equity (cash) tied up in your home, if you're 55+. If you have a question about state pension top-ups, Steve has written a guide which you can find here. Normally, you cannot take the tax-free lump sum without also commencing the scheme income payments. Typically, most people would opt for a greater income, unless you have a reason not to. Tom Slater interview, Nissan unveils all new Qashqai SUV, made in Sunderland, Chinese Nio ET7 electric family car costing £60,000, £3,200 electric car that's outselling Tesla in China, Nick Train interview: There's plenty to be optimistic about. Pension rules: I only want to withdraw 25% but am being told I have to take the lot (Stock image). If you're only taking the 25% tax-free pension lump sum, you'll still be able to contribute up to £40,000 a year into a pension and earn pension tax relief. The lump sum on death benefit must be paid within two years of the date upon which the Scheme Administrator was first notified of your death otherwise it will be subject to a HM Revenue & Customs (HMRC) tax charge of up to 45%. A new £150m community fund can help and we speak to two groups trying to do it - and the villagers who saved their pub, 'Female-led firms can be at the heart of recovery,' says Small Business Britain on International Women's Day: We speak to four founders for inspiration, Balance transfer bounce back continues: Banks boost 0% terms after credit card availability hit an all-time low, SMALL CAP SHARE IDEAS: Bloomsbury Publishing's digital push boosted by lockdown reading revival. Has Steve Webb answered YOUR retirement question yet? Defined Benefit schemes will often provide you with a tax-free lump sum at retirement, which can either be in addition to the income benefits paid or by commuting (giving up) some of the income payable by the scheme. Since leaving the Department of Work and Pensions after the May 2015 election, Steve has joined pension firm Royal London as director of policy. New state pension age: when will you retire. But if you take an uncrystallised fund pension lump sum, you'll trigger something called the 'money purchase annual allowance'. If Steve is unable to answer your question, you can also contact The Pensions Advisory Service, a Government-backed organisation which gives free help to the public. You wouldn’t want to leave yourself short and having to make sacrifices because you took too much lump sum. This is Money decodes the horror jargon here. Investments can go up and down in value, so you could get back less than you put in. All articles I have read say you can lift 25 per cent tax free from your pension after you become 55. Steve receives many questions about state pension forecasts and COPE – the Contracted Out Pension Equivalent. I had recently enquired about taking the 25 per cent tax free lump sum from my first pension … In all three sections, the tax free amount is capped at 25% of the lifetime allowance in force at the time you draw your benefits, or your protected amount if you have previously arranged pension protection. The 'escape velocity' Budget and the £3bn underpaid state pension victory, BUSINESS LIVE: House prices could rise £10,000, £43m offered for carcass of '£5bn' Greensill, Jersey's 'not a soft touch', Woodford warned, Investors pile into publishing giant Pearson, Aston Martin all-electric in the UK by 2025, II snaps-up 50,000 investing accounts from Equiniti. Can you advise? Yes, every scheme member is entitled to a tax free lump sum from their NHS Pension. As I explain below, you will also have to be very careful how you do this to make sure you don't trigger a big cut in the amount you can contribute to the pension with your current employer. One thing to note. For every £1 of pension you give up you will receive an additional £12 tax free lump sum. If yes, why would this be the case? How much of my lump sum will be tax free? You should receive your lump sum the day after you officially retire. If you are writing to Steve on this topic, he responds to a typical reader question here. Can I exchange some of my pension for a lump sum payment? There are two main sorts of drawdown account and it is vitally important that you select the right sort for what you are trying to achieve. Incidentally, I am impressed that you are looking to make sure that the rest of your first pension pot remains invested rather than cashing it all in! Read more here about the dangers, and some ways to invest cautiously in retirement. The other sort of drawdown account is described by Pensionwise as 'taking cash in chunks, and is known in the pensions industry by the horrible phrase Uncrystallised Funds Pension Lump Sum (UFPLS). The NHS Pension Scheme pays the tax on your behalf when it is due, and members pay the scheme back through a reduction in their retirement pension (or lump sum). By Steve Webb for This Is Money. Revealed: 5G is now available in nearly two fifths of Britain delivering speeds that are 5x faster to devices - but how far off is widespread coverage? Do this and it's important to understand when you withdraw cash you get 25% of each lump sum you withdraw tax-free. From what you have said, it sounds as though a 'flexi-access' drawdown account would meet your needs. Published: 03:49 EST, 14 January 2019 | Updated: 03:49 EST, 14 January 2019. I had recently enquired about taking the 25 per cent tax free lump sum from my first pension and I have just received a letter from the pension people saying that I can take the 25 per cent pension commencement lump sum (as they call it) but I would also have to take my pension (75 per cent remaining) as early retirement with it. You don’t need to have fully paid off your mortgage to do this.
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