Tax on remaining cash balance

[Jack1960]

Morning and happy fathers day , I have my final figures for my nra65 due August this year, I will have about 24 thousand in my cash balance so will take first 25 percent tax free, so that leaves about 18 thousand , I want to pay the tax on that so will be about 14 or so left, does that get added to cumulative total as earned just under 50000 last year pay and pension, so any additional money in would put my tax rate up ,is that correct ?

[ant.1966]

I had a conversation with RMPP regarding similar circumstances recently and they told me plenty claiming NRA65 whilst working are being stung at 40% on their cash balance (CB). As a result the following is my understanding of how it works.
It would depend on your taxable income for this year April 2022 to March 2023. Any thing over 50k inc taxable pension payments will be at higher 40% rate. So if you were to earn c 50k again this tax year before your NRA65 was taken into account the remaining taxable £18000 CB would be taxed at 40% unfortunately. If your earnings excluding the £18000 CB are less than 50k for the tax year (don't forget your monthly NRA65 pension will be included as taxable income once in payment also) it would be at 20% until the 50k threshold was met then the remainder at 40%. Big downside of the CB scheme being in place for over 4 years now is the amount of tax having to paid whether at 20/40%. However there is an option to take some of your cash balance to fund an increase on your pre-2018 element of your NRA65 lump sum to tax-free max (this would then give you a higher monthly pension) but this would not use all your taxable £18000 CB up so you would still have to pay tax at applicable rate for remaining CB balance unused. Someone more knowledgeable may advise otherwise but hope this helps....

[RobertT]

The original idea of the DBCBS was to provide a lump sum so you don't have to give up as much, or any, pension to get one. Particularly good for section C members who don't get a lump sum as standard.
In my personal opinion, that's it's best use!

But it is also possible to take the max lump sum from your pension and the DBCBS as a separate lump sum. Which means overall getting a higher lump sum, but potentially losing more of it in tax, depending on personal circumstances.

The DBCBS has lasted for longer than expected and therefore income tax is more likely to be an issue however you access it!

My understanding is once the tax free element of the DBCBS has been determined, the remaining amount is paid out as an Uncrystallised Funds Pension Lump Sum(UFPLS). Which in basic terms means the first 25% of that remainder is also tax free.

So there may be a bit less tax to pay than you think.

The normal income tax bands are as follows:

The first £12,570 earned in a financial year is tax free.
From £12,571 to £50,270 is at 20%.
From £50,271 to £150,000 is at 40%.
Anything over £150k is at 45%.

The starting amount should actually be slightly more for RM employees, due to the uniform cleaning allowance.

Income from wages, pensions and any other source deemed to be taxable will all be factored in when working out your total income tax liability.
In RM terms that could also include PILON payments and VR's over £30,000.

National Insurance is not payable on pension income.

[Jack1960]

Thank you to you both for your replies, if I carry on the overtime I do now plus my current pension I will easily hit 50000 by the end of the tax year even before I take the one due to me in August, I still have couple of weeks to decide what to do , thanks again for replying on a sunday !!

[heapsy]

The original idea of the DBCBS was to provide a lump sum so you don't have to give up as much, or any, pension to get one. Particularly good for section C members who don't get a lump sum as standard.
In my personal opinion, that's it's best use!

But it is also possible to take the max lump sum from your pension and the DBCBS as a separate lump sum. Which means overall getting a higher lump sum, but potentially losing more of it in tax, depending on personal circumstances.

The DBCBS has lasted for longer than expected and therefore income tax is more likely to be an issue however you access it!

My understanding is once the tax free element of the DBCBS has been determined, the remaining amount is paid out as an Uncrystallised Funds Pension Lump Sum(UFPLS). Which in basic terms means the first 25% of that remainder is also tax free.

So there may be a bit less tax to pay than you think.

The normal income tax bands are as follows:

The first £12,570 earned in a financial year is tax free.
From £12,571 to £50,270 is at 20%.
From £50,271 to £150,000 is at 40%.
Anything over £150k is at 45%.

The starting amount should actually be slightly more for RM employees, due to the uniform cleaning allowance.

Income from wages, pensions and any other source deemed to be taxable will all be factored in when working out your total income tax liability.
In RM terms that could also include PILON payments and VR's over £30,000.

National Insurance is not payable on pension income.

Robert, have you any idea what percentage of the CB scheme you can take with the NRA 60? Just trying to work out a few figures for my own situation. Thanks in advance.

[RobertT]

The DBCBS is specifically attached to benefits accrued via the RMPP, which is those from 2012 to 2018, and so the DBCBS can currently be taken predominantly with NRA65 benefits.

The original plan was for it to be taken alongside RMSPS benefits aswell, in a similar way to AVC's(Flexiplan & Bonusplan), but the Cabinet Office refused to allow it!

However, the RMPP are also responsible for some inflationary increases on RMSPS benefits that continued to increase from 2012 onwards.
Therefore some DBCBS can be taken with NRA60 benefits too.

As time goes by those inflationary increases will compound and therefore the amount of DBCBS that can be taken with NRA60 should also increase.

From memory of a few posts on these forums over the last year or two, I would say the amount of DBCBS you can take with your NRA60 is currently in the region of 15%.
But to be honest it's just guess work on my part and I wouldn't base any important decisions on what I say.

[heapsy]

Thanks for that. I'm paying AVCs for now, but obviously they will stop when the pension formally closes and we move to the CDC. Just adding a few things up, cheers.

[Duran]

Best time to take your pension if you are worried about 40% tax over 50k on lump sum payments. Would be before the start of new tax year. That way any pension salary wouldn't be included in your taxable income for that year.

[freespeech]

Best time to take your pension if you are worried about 40% tax over 50k on lump sum payments. Would be before the start of new tax year. That way any pension salary wouldn't be included in your taxable income for that year.

If you "use" your tax allowance in both tax years the loss to tax will be exactly the same (assuming allowances stay the same).

[RobertT]

Best time to take your pension if you are worried about 40% tax over 50k on lump sum payments. Would be before the start of new tax year. That way any pension salary wouldn't be included in your taxable income for that year.

That would be true if you're going to carry on working on current wages for the full new year. But if the plan is to retire, it would be better to take it in the new tax year, as you would only have your pension income and not both pension and wages.

If you "use" your tax allowance in both tax years the loss to tax will be exactly the same (assuming allowances stay the same).

The more you earn over the tax allowances, the more tax you pay.

Currently anything under £12,570 is tax free.
Between £12,571 and £50,270 tax is payable at 20%.
Between £50,271 and £150,000 it's 40%.
Over £150,000 it's 45%.

Any pension lump sums over and above the 25% tax free amount will count as income.
The first £30,000 of any VR payment is tax free, the remainder will count as income.

[freespeech]

If you "use" your tax allowance in both tax years the loss to tax will be exactly the same (assuming allowances stay the same).

The more you earn over the tax allowances, the more tax you pay.

Currently anything under £12,570 is tax free.
Between £12,571 and £50,270 tax is payable at 20%.
Between £50,271 and £150,000 it's 40%.
Over £150,000 it's 45%.

Any pension lump sums over and above the 25% tax free amount will count as income.
The first £30,000 of any VR payment is tax free, the remainder will count as income.
[/quote]

My point was that if your income was over the tax allowance in both years (or expected to be) then the additional tax payable for the lump sum (above 25%) is exactly the same regardless of tax year.

[RobertT]

My point was that if your income was over the tax allowance in both years (or expected to be) then the additional tax payable for the lump sum (above 25%) is exactly the same regardless of tax year.

My point was that it would depend on your actual income!

If I earn £20k and you earn £40k, we both use our full personal tax allowance and pay income tax at 20% on everything over.
But any additional income from pensions and lump sums is more likely to push you into the higher tax band, and therefore you'll pay more in tax.

[freespeech]

My point was that if your income was over the tax allowance in both years (or expected to be) then the additional tax payable for the lump sum (above 25%) is exactly the same regardless of tax year.

My point was that it would depend on your actual income!

If I earn £20k and you earn £40k, we both use our full personal tax allowance and pay income tax at 20% on everything over.
But any additional income from pensions and lump sums is more likely to push you into the higher tax band, and therefore you'll pay more in tax.

Agreed, but going back to the original response, all things being equal it's irrelevant what tax year you take the money in.

[freespeech]

My point was that if your income was over the tax allowance in both years (or expected to be) then the additional tax payable for the lump sum (above 25%) is exactly the same regardless of tax year.

My point was that it would depend on your actual income!

If I earn £20k and you earn £40k, we both use our full personal tax allowance and pay income tax at 20% on everything over.
But any additional income from pensions and lump sums is more likely to push you into the higher tax band, and therefore you'll pay more in tax.

Agreed, but going back to the original response, all things being equal it's irrelevant what tax year you take the money in.

...or another way of putting it is......for any individual whose circumstances remain the same, there is no difference in tax in taking the pension or lump sum either in the current tax year or the next.

[RobertT]

Assuming you stay within the same tax band, proportionally you won't pay anymore tax!

Lol.