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Pensions and lump sum

Discussion in 'Retirement' started by alfredrussell, Jul 1, 2011.

  1. alfredrussell

    alfredrussell New commenter

    I am sure someone here can asnwer this question. I am having some problems finding succinct answers elsewhere. If I retire on a basic (TPS) pension of roughly 16k p.a. and a lump sum of about 48k (both actuarially reduced) at age 58 how much tax do I have to pay on the two amounts?
  2. The lump sum is tax free. If you have no other income during the tax year and a standard 7.5k tax allowance you would pay 20% on anything above this ie 8.5k x 0.2= £1700 a year tax.
  3. alfredrussell

    alfredrussell New commenter

    Thanka for that. Why tax at 20%?
  4. Dodros

    Dodros Star commenter

    Because that's the basic tax rate on taxable income. That's what I pay on my teachers' pension.
  5. alfredrussell

    alfredrussell New commenter

    And no NI deductions? What happens when the state pension kicks in? Is that taxed as well?
    Sorry for the very simplistic questions.
  6. blue117

    blue117 New commenter

    I thought that even if you carry on working after 60th birthday you don't pay NI. But now all the 'birthday' markers have altered .... I don't know
  7. State pension is paid gross, but your tax allowance is reduced so you pay extra tax on your teachers pension.
  8. alfredrussell

    alfredrussell New commenter

    Thanks for the answers, people
  9. You have to pay NI if you carry on working and are under the state pension age ie 65 for men and 60.5+ for women at the moment.
  10. jacob

    jacob Lead commenter

    ... and the government have plans for all retirees with income over a certain amount to pay NI.
  11. reg1950

    reg1950 New commenter

    That might alarm people unnecessarily jacob. There's been speculation that the government might do this (possibly to fund long term care), but at present the government have no plans to to levy NI on pensions. They are looking longer term at merging the Tax and NI systems but no-one has suggested this will mean that people who don't pay NI now would have to do so under a merged system.

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