Some NHS staff members are considering retiring early because of speculation that there may be changes to the way their pensions are taxed in next month’s Budget.
Currently, people can take 25 per cent of their pensions – up to a value of £268,275 – tax-free, although Chancellor Rachel Reeves has been urged to consider limiting this to £100,000.
Wealth managers have told i they have been inundated with requests from clients over the age of 55 wondering whether they should withdraw their cash now – instead of waiting – to avoid possible extra taxes.
Those who specialise in providing advice to NHS staff have said this issue has affected healthcare staff significantly.
NHS staff receive a lump sum when they take their pension. Those who have worked for the NHS for decades and are part of the old pension scheme get these lump sums automatically, but newer staff can also take them in return for a small monthly payment throughout retirement.
Jack Needham, NHS pension specialist at Medifintech said the firm had received over 200 queries from NHS staff wanting to know the impact of taking their lump sum in the past two months.
He said: “Recent speculation around potential changes to pension taxation, particularly the suggested reduction of the tax-free lump sum from £268,275 to £100,000, has understandably caused significant concern among NHS staff.
“Whilst it’s crucial to be prepared, making hasty decisions based on speculation can lead to poor financial outcomes. Many members risk losing out on valuable benefit increases, particularly in light of recent annual pay awards and the consultant pay deals, which take time to be fully reflected in pension award calculations.”
Graham Crossley at Quilter Cheviot, said: “Speculation is definitely driving members over the age of 55 to consider retirement or partial retirement earlier than otherwise.”
NHS staff on the newer pension schemes can give up £1 pension income per £12 lump sum.
Staff can also partially retire, where you get your pension while still working, and so can receive a portion of their lump sum while doing this.
Greg Hendricks, specialist financial adviser at Wesleyan Financial Services, said: “It’s no surprise we’ve had more questions from doctors around early withdrawal of lump sums recently, fuelled by concerns about what will come in the Autumn Statement.
“It’s important to keep in mind that all we’ve seen to date is speculation. While it’s understandable that many people are trying to act early to get ahead of the game, moving too quickly can have a significant negative impact on years of careful retirement planning. It’s vital to take the time to understand how accessing your pension early will impact your benefits and your lifestyle before considering any changes.
“For the time being, we would recommend making decisions based on current rules and legislation until we know more, but be prepared to move quickly once we have clarity.”
If changes to pension taxes were made at the Budget, it is not clear whether they would apply immediately, or from a specified date in the future.
Rumoured speculation about pension changes have already affected doctors in recent months.
Labour previously committed to reintroducing the lifetime allowance cap on pensions – a limit on the amount people can build in pension savings over their lifetime and still receive tax relief – having criticised the previous Government for removing it.
At the time, doctors told i they were considering taking their pensions early to avoid extra tax bills, though in the end, Labour abandoned its plans to change the rules.
No such plans were included in its manifesto for the election.
