Just an update on tax re taking your pension part way through a tax year

[stephen500]

I thought I would update you all!
Just some info for those of you considering taking your pension part way through a tax year.
It may or may not help any one else, but hopefully it will for some one going from Royal Mail part year.
So to date.
If you plan to carry on working, then ignore below, because you should just pay tax at 20% on your pension and at your appiled tax rate for your wage.
I took my lump sums on Nov 1st.
I had my first pension payments on the 30th Nov, both RMSPS and RMPP
The first months payments were both assigned a BR code month 1 and my pensions taxed at 20% as I had not left RM employment till the middle of December.
After my P45 was issued midway through December I contacted HMRC.
They then told me that they cannot spilt a tax code three ways for this year, so did the following. (but they can spilt it in two next year for the new tax year and as my combined pensions will be below the tax threshold, I will not pay tax)
For RMPP they issued a "BR" code, which means Basic rate. Meaning I will pay 20% per month for the rest of the tax year.
For RMSPS, I told them that was my main income for the rest of the tax year and they issued me a code 1128XL meaning I could receive £940 per month tax free. My RMSPS pension is below that, so that means from the January 2021 payment I will pay no tax and may get a small rebate from them for December. It may be that they give me back too much of a rebate, as I was earning with Royal Mail till Mid December. If they do, then I will have to settle that up with HMRC at the end of the tax year.
I also checked my on line tax account.
£25757. RM wage till mid Dec.
£4207.05 RMSPS 5 months Dec to March incl
£729.95 RMPP 5 Mths Dec to March Incl
£30,694 total estimated income for tax year
£11,282. Tax allowance £12,500 minus £1218 tax allowance I owed them which in cash amounts was £52 for the year before and £63 estimated for this year, which may be my loss of uniform allowance. (It will revert to £12,500 next tax year)
£19412 is taxable at 20%
Tax due to pay for year £3882.40
Tax paid £3440 Royal Mail
£336.40 RMSPS Nov and Dec
£58.20 RMPP Nov and Dec
£87.40 RMPP Jan to March incl (£29.20 per month)
Total estimated tax paid £3922.20
Over payment of tax £39.80
If because my tax code has been changed to 1128x for RMSPS, they pay me back all of my tax paid, then I will have to settle up with HRMC at the end of the tax year. As I was due to pay tax, which I have for Nov and Part of Dec as I was working for Royal Mail then. Which may mean I may have to pay them around £300 to settle up.
I could have done nothing and then waited for a rebate at the end of the tax year, if I had carried on paying tax on both of my pensions and not working.
However it is good to get your tax codes changed, if only for the excess cash balance scheme I am due.
I am still due a few thousand pounds for the excess cash balance scheme (which you get up to 12 weeks after your pension payment)
Now I have a "BR" code for RMPP who pay this, and having spoken the HMRC who think I am right, that means my excess cash balance scheme should now be paid at 20%.
Bearing in mind my income won't take me into the 40% tax bracket,even with the excess cash balance scheme of which 25% is tax free and 75% taxable.

[261184]

That was exhausting, but well done & enjoy your retirement. I’m going next yr 2021...60 in Sept, but may go at end of March before new tax yr starts. Had enough after 30 odd years, & the last 3/4 have been whilst suffering Bullying/Harassment...time to start enjoying life before its all over

[stephen500]

That was exhausting, but well done & enjoy your retirement. I’m going next yr 2021...60 in Sept, but may go at end of March before new tax yr starts. Had enough after 30 odd years, & the last 3/4 have been whilst suffering Bullying/Harassment...time to start enjoying life before its all over

Yes , we don't know how much time we have left. Two people I know died of covid yesterday, one was just 60.
Going on to 67 is a dangerous game. Of course I could pop my cloggs next week, but at least I would have had some retirement. All the best.

[koolishy67]

That was exhausting, but well done & enjoy your retirement. I’m going next yr 2021...60 in Sept, but may go at end of March before new tax yr starts. Had enough after 30 odd years, & the last 3/4 have been whilst suffering Bullying/Harassment...time to start enjoying life before its all over

Yes , we don't know how much time we have left. Two people I know died of covid yesterday, one was just 60.
Going on to 67 is a dangerous game. Of course I could pop my cloggs next week, but at least I would have had some retirement. All the best.

2 people retired in our office last week and they are around 55 life is More important than this job we know that impossible to not catch the virus at some point in our job great desion stay home and good luck

[rambo1]

That was exhausting, but well done & enjoy your retirement. I’m going next yr 2021...60 in Sept, but may go at end of March before new tax yr starts. Had enough after 30 odd years, & the last 3/4 have been whilst suffering Bullying/Harassment...time to start enjoying life before its all over

That last line is something we should all take heed of, it can't be overstated enough.

[rambo1]

Hoping to go either this yr or next and live off money built up in a s and s ISA until pension age , me and the Mrs have done the sums, she can retire next yr on full pension at 55. Regards the OP, I think I'm correct in saying I can practically work tax free until about August (paying tax until then but as I won't be earning anything after that I should be able to get a rebate for anything earned up to the threshold that tax yr).

[freespeech]

Hoping to go either this yr or next and live off money built up in a s and s ISA until pension age , me and the Mrs have done the sums, she can retire next yr on full pension at 55. Regards the OP, I think I'm correct in saying I can practically work tax free until about August (paying tax until then but as I won't be earning anything after that I should be able to get a rebate for anything earned up to the threshold that tax yr).

What pension did your Mrs have to take a "full" pension at 55? You can legally draw private pensions from 55 but most are aged 60 or 65 so a reduction will be applied if taken early.

[lordthornber]

Butting in here, my Social Services (Local Government) pension was taken in full at age 55. Believe it or not, there was some NHS pensions available in full aged 50, I know 2 folk that have them, but they don't exist any more I understand.

[RobertT]

The local government scheme has the 85 year rule which allows members to take their pension without reduction if their age and service add up to 85. The Police can claim their pension in full after 30 years service.
There may be other schemes with similar rules?
But I assume, and without knowing all the details, the above only applies if members have service before a certain date?

There may be other factors which enable some people to take their pension without reduction, such as leaving via voluntary redundancy, etc. But a lot will depend on the rules of the specific scheme.

[freespeech]

The local government scheme has the 85 year rule which allows members to take their pension without reduction if their age and service add up to 85. The Police can claim their pension in full after 30 years service.
There may be other schemes with similar rules?
But I assume, and without knowing all the details, the above only applies if members have service before a certain date?

There may be other factors which enable some people to take their pension without reduction, such as leaving via voluntary redundancy, etc. But a lot will depend on the rules of the specific scheme.

In RM terms VR doesn't give pension "without reduction". In some cases, however, medical retirement will achieve that but it's rare.

[RobertT]

In RM terms VR doesn't give pension "without reduction".

Correct, but some other employer pensions schemes might.

The RM scheme used to give an enhanced pension for those aged 55 to 64.5(if memory serves) and leaving via VR.
It gave a lump sum of 26 weeks pay, plus 37.5% of the pension you would have accrued up to age 65, and no reductions for taking it early.

That ended with the 4 Pillars agreement in 2018. One of the parts of that agreement that RM hasn't ignored!

In some cases, however, medical retirement will achieve that but it's rare.

Yes, only in cases where the member isn't expected to be able to work again, in any form, and probably only after the help of their GP and the CWU, as RM won't want to pay out willy nilly.

[rambo1]

Hoping to go either this yr or next and live off money built up in a s and s ISA until pension age , me and the Mrs have done the sums, she can retire next yr on full pension at 55. Regards the OP, I think I'm correct in saying I can practically work tax free until about August (paying tax until then but as I won't be earning anything after that I should be able to get a rebate for anything earned up to the threshold that tax yr).

What pension did your Mrs have to take a "full" pension at 55? You can legally draw private pensions from 55 but most are aged 60 or 65 so a reduction will be applied if taken early.

NHS 'special classes' . Final salary pension at 55 with no reduction. Happy days.

[freespeech]

Hoping to go either this yr or next and live off money built up in a s and s ISA until pension age , me and the Mrs have done the sums, she can retire next yr on full pension at 55. Regards the OP, I think I'm correct in saying I can practically work tax free until about August (paying tax until then but as I won't be earning anything after that I should be able to get a rebate for anything earned up to the threshold that tax yr).

What pension did your Mrs have to take a "full" pension at 55? You can legally draw private pensions from 55 but most are aged 60 or 65 so a reduction will be applied if taken early.

NHS 'special classes' . Final salary pension at 55 with no reduction. Happy days.

Best of luck.

[rambo1]

Hoping to go either this yr or next and live off money built up in a s and s ISA until pension age , me and the Mrs have done the sums, she can retire next yr on full pension at 55. Regards the OP, I think I'm correct in saying I can practically work tax free until about August (paying tax until then but as I won't be earning anything after that I should be able to get a rebate for anything earned up to the threshold that tax yr).

What pension did your Mrs have to take a "full" pension at 55? You can legally draw private pensions from 55 but most are aged 60 or 65 so a reduction will be applied if taken early.

NHS 'special classes' . Final salary pension at 55 with no reduction. Happy days.

Best of luck.

Thank you. As has been said, you never know what's round the corner so life is for living. Best of luck in your endeavours too.