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Do you pay tax and National Insurance on your pension

Discussion in 'Retirement' started by 20drew01, Aug 7, 2020.

  1. 20drew01

    20drew01 New commenter

    Good morning everyone,
    I am looking to escape next year and take my pension at 56. Once I've sorted out my McCloud mess as I am a 'tapered member' (sounds painful I know) what can I expect to lose in tax and NI contributions?

    Are there any other expenses I need to consider?

    Many thanks in advance for your replies.
  2. seasoned

    seasoned Occasional commenter

    I took early retirement two years ago at 57; income tax is paid on your teacher's pension but NI contributions are not.....:)
  3. 20drew01

    20drew01 New commenter

    Thanks Seasoned,
    Any other costs I need to be aware of I may not have thought about?
  4. Rott Weiler

    Rott Weiler Star commenter Forum guide

    Prim likes this.
  5. heldon

    heldon Occasional commenter

    56 is a good age to jump ship, I did and life is great if you want it to be!
  6. 20drew01

    20drew01 New commenter

    Thanks, now I've said it out-loud to my wife the coming year will be just bearable in school. Ending up in A&E this year with chest pains was all the biggest wake up call I've ever had...
  7. diddydave

    diddydave Lead commenter

    • When comparing your salary to your proposed pension don't be scared by the drop...going from £45,000 to £20,000 may seem a lot but check the NET figures after all the deductions such as:
      • Salary of £45,000
        • Deduct £5,400 National Insurance @ 12%
        • Deduct £4,590 Pension Contribution @ 10.2%
        • Deduct £5,582 Income Tax @20% on taxable income
        • NET Income: £29,428
      • Pension of £20,000
        • Deduct £1,500 Income Tax @20% on taxable income
        • NET Income of £18,500
      • National Insurance @ 12%...pensions don't pay NI
      • Pension Contributions @8-12%...you'll stop paying into the pension scheme
      • Income Tax @20%...ok, hopefully you'll have a large enough pension to pay income tax BUT you still get the personal allowance (£12,500 in 2020 so a greater proportion of your income is tax-free.
      • EXAMPLE... a teacher going from a salary of £45,000 to a pension of £20,000:
      • So instead of dropping £25,000 the actual, in your pocket, drop is more like £11,000
    HannahD16 and eljefeb90 like this.
  8. eljefeb90

    eljefeb90 Senior commenter

    As always, very clear number - crunching from @diddydave . These figures mirror my experience almost exactly, although I got slightly less for my pension, so there was a £12,000 annual gap. However, my retirement coincided with paying off my mortgage (£7,000 a year) and paying the last year of my son's uni rent (£6,000 per year). So, I was already £1000 per annum better off. I sought various invigilation jobs and now earn about £500 net per month for about 7 days work per month on average.
    Plus, I have a nice lump sum to cover major eventualities and I actually get an index -linked increase every year, unlike the last five years of my career. So, I have no need to set money aside for savings or the proverbial 'rainy day'.This alone is a massive plus as well as being reassuring.
    I have made a dent in my lump sum but have fixed my roof, have a new kitchen ,have paid towards my daughter's wedding and replaced the car and still have plenty left. This financial buffer is a massive added bonus.
    So, taking all these lower outgoings into account, I would estimate that I am about £12,000 per annum better off since I retired (allowing about £5000 per year from the lump sum to pay for home improvements, car , wedding).
    And I shall be getting another £9,000 in four and a bit years' time when I reach 66 (minus 20% tax).
    Time your retirement with the end of your mortgage and the departure of your offspring and you will be pleasantly surprised how much money you have.
    Brianthedog and HannahD16 like this.
  9. PeterQuint

    PeterQuint Lead commenter

    One correction, DD. You forgot to deduct the National Insurance allowance before calculating the 12%. That’s currently £9,500.

    £45,000 - £9,500 = £35,500. 12% = £4,260.
  10. diddydave

    diddydave Lead commenter

    Thanks, that's what I get for looking back at an old post...
    PeterQuint likes this.
  11. PeterQuint

    PeterQuint Lead commenter

    Absolutely spot on with everything else, as usual, and the overall point is just as accurate.
  12. PeterQuint

    PeterQuint Lead commenter

    Once you've decided to go the pressure lifts massively.

    Was it just 'the job' in general, or were you being poorly treated?
  13. old_dobbin

    old_dobbin Occasional commenter

    DD is right. You will have fewer outgoings in retirement. I paid off my mortgage when I retired saving about £400 a month, and also saved about £160 a month in traveling expenses. Buying sandwiches most days also mounted up and I now spend very little on clothes. In retirement I now have more left over at the end of the month than I had when I was working. I actually paid for a new kitchen out of pension savings without needing to use my lump sum. I shop around for gas/electricity every year and don't overpay on insurance premiums. I'm not shy about asking for a lower price for my broadband either.
    emerald52 and wayside34 like this.
  14. 20drew01

    20drew01 New commenter

    As a Deputy I've always seen both sides and been able to get people together but a new headteacher after a longstanding one and a staff that really took a dislike to them meant I really couldn't do what I normally did so crumbled really under the pressure after 18 months of bickering and sniping, a place I'd been happy for years isn't anymore.
    eljefeb90 likes this.
  15. Brianthedog

    Brianthedog Occasional commenter

    You sound just like me!

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