Thinking of retiring soon? If you are thinking about planning your retirement, there are various things to consider before putting final decisions into action.
Can you afford to retire?
We would wholly recommend you undertake a holistic review of your financial needs and circumstances. Part of this should include an assessment of your pre and post-retirement income and expenditure levels, as well as what capital may be required.
As an NHS professional, several aspects of your personal and business finances require careful consideration. These may include establishing what funds may be available from the partnership current/capital accounts, your NHS pension and lump sum entitlements may be payable. In doing so, you will also need to factor in what tax implications there may be and consequently, what financial and tax planning opportunities could be available to mitigate such liabilities.
Key messages which you should give a thought for:
Protections
Before submitting a claim for any pension benefits. It is prudent to minimise one’s tax liabilities by taking advantage of Lifetime Allowance protection, where it is available. The Lifetime Allowance, being the limit (currently £1,073,100) on an individual’s total registered UK pension benefits without incurring an additional tax charge. Ignoring the state pension, all pension benefits you accrue will utilise a percentage of one’s lifetime allowance.
The lifetime allowance charge is:
- 55% if benefits exceed the lifetime allowance and are paid as a lump sum
- 25% if benefits exceed the lifetime allowance and are paid in the form of income (subsequently taxable as income)
NHS pensions pay the lifetime allowance charge directly to HMRC, reducing your NHS pension benefits permanently.
HMRC have previously made a series of protections available against the lifetime allowance as it has been progressively reduced, allowing individuals to accumulate pension benefits exceeding the current standard lifetime allowance without incurring a charge or at least reducing it. The predominant protection type available today is Individual Protection 2016 (IP16).
You can request an IP2016 valuation from NHS pensions and if you have other pension plans, from the provider to ascertain if you are eligible. If so, a higher Lifetime allowance can be protected, up to a maximum of £1.25 million. Given this is £176,900 higher than the standard lifetime allowance, there is scope for a tax saving of up to £97,295.
If previous forms of protection have been successfully applied for, you must ensure the lifetime allowance protection certificate is readily accessible and available at the time of applying for your pension benefits as the details from this are required.
- Primary protection
- Enhanced protection
- Fixed Protection 2012
- Fixed Protection 2014
- Individual Protection 2014
- Fixed protection 2016
Please note, it may be you have also lost a form of protection. It is important in this instance to remember you may be required to notify HMRC of such loss, to avoid a possible fine(s)
Scheme pays elections
If you have incurred annual allowance tax charges and utilised a scheme pays election to cover the cost of tax liability. These will need to be considered in calculating your end-of-career entitlement, as the total reward statement does not factor these in when applied online.
You will also need to plan, should you need to make use of a scheme pays election for the year of retirement, and ensure all scheme pays elections have been submitted within the time limits.
Current and capital accounts
If in a partnership, you may have accrued undrawn funds in your current account and a share in the capital assets of the partnership. The partnership agreement should identify when these will be paid to you after your retirement. There may be capital gains tax implications on the sale of assets such as shares or property that will need to be considered when calculating your tax liabilities.
Tax calculations
Income may be significantly reduced in the year of retirement and therefore we recommend that forecasts are prepared to assess your tax liability and any potential reductions of payments on account.
The tax code on your pension will also need to be considered when preparing the calculations.
Notifying the Partnership
The Partnership Agreement should contain the requirements for notification of intention to retire and this will assist the remaining partners to plan for your retirement.
Submitting your application AW8(P)
When the decision has been made to retire the form AW8(P) will need to be completed and submitted to NHS Pensions in the necessary timescale to enable them to calculate your benefits. These forms are found on the NHSBSA website.
How to best manage your plan & resources?
Following the enaction of your plan, you may well be faced with a degree of wealth you have not previously been used to.
Our specialist NHS Financial Planners will help you develop your plan and help you manage your assets to support your future.
We understand our client’s needs and circumstances are different from household to household, and we can tailor a bespoke plan for you to best meet your goals. Whether this is debt redemption, investment of your capital or focusing on your other tax planning issues, we will be there to support you every step of your journey.
This article should not be construed as a personalised recommendation. The most suitable solution for you will depend on your own personal circumstances. No action should be taken without seeking further formal advice.
MHA Moore and Smalley is the trading name of Moore and Smalley LLP. Moore and Smalley LLP is regulated by the Financial Conduct Authority, FCA registration number 448716.
