SCSB -Which Option?

A

AnneD

Guest
Hi

I am taking voluntary redundancy from work and need to select which SCSB option I should take:

Option 1: take tax free lump sum from pension on retirement
Option 2: take tax free lump sum from pension now

I have been working with this employer for 10 years, and do intend working some time in the future, possibly in the next 3 years. I am in my mid 30's.

Can anyone explain what might be the criteria I should use and / or implications of whether I should go with option 1 versus 2. From talking to colleagues, the consensus is to take option 2, as who knows what tax rules will be in place in the future - but this just doesn't sound like a good enough reason to me!!

Any advice would be really appreciated.
 
Hey Anne

I deal with this a fair bit but before i say anything I would point out that the decision your taking is a very personal one and wholly dependent on your circumstances now and expected circumstances in the future.

just to correct your initial statement, you are not actually taking the lump sum now, you are waiving your right to it which has the result of increasing the amount of SCSB relief you can use, thereby decreasing the taxable amount of your severance package and increasing your bottom line.

Like i said, this is a personal choice, a lot of people look at the difference in in the SCSB relief figures as "the cost of keeping your options open" i.e. you cant touch the pension until you're 50 ANYWAY at a minimum (thats why i corrected your statement) so if you're likely to take up more employment, then at your age you have ample time to build up another lump sum in another pension.

If on the other hand you dont intend working, then the lump sum may come in handy when you reach 50/65 (depending on the terms of your pension) but based on my experience (and this applies especially to younger people) if you waive now, you probably wont even realise you did it in 20 years time (again based on the premise you'll be working in the future)

whatever option you take will still result in an annual pension entitlement (can reduce slightly depending on what option you take) but the main deciding factor for now is do you/need or want in the future the lump sum element of your pension.

hope i have been clear.

If you want any other information, please let me know.
 
Is SCSB automatically applied or do you have to ask for it to be used instead of the basic exemption only ?
 
Employer should compute which exemption (SCSB, basic or increased basic) is the highest for the individual concerned. The highest exemption is then claimed when computing the amount of tax (if any) payable on the termination lump sum.
 
when you apply slicing to the SCSB. Is the benefit of the extra allowance paid at the end of the year, and is this then dependent on all other earnings for the year i.e. the time of the year you leave (get your redundancy)makes a difference.

eg .scsb allowance = 50K net redundnacny payament after tax = 60K
incl extra slicing allowance = 55K net redundancy payment after tax=63K

is this 3k paid at the end of the tax year, and can all other earnings for the year alter it

thanks
 
Another question (apologies if this is diverting the thread). When you calculate your average earnings over the last three years for the purpose of SCSB do you include overtime? i.e. can I rely on my P60 for the calculation or should I only count by basic pay?
 
Its actually the last 36 months before redundancy that you take the average over , so the last 3 P60 may not be exactly accurate.
 
dockingtrade said:
when you apply slicing to the SCSB. Is the benefit of the extra allowance paid at the end of the year, and is this then dependent on all other earnings for the year i.e. the time of the year you leave (get your redundancy)makes a difference.

eg .scsb allowance = 50K net redundnacny payament after tax = 60K
incl extra slicing allowance = 55K net redundancy payment after tax=63K

is this 3k paid at the end of the tax year, and can all other earnings for the year alter it

thanks
Click to expand...


anyone ever apply the slicing like example above.
When is the rebate?
does your earnings for the yeat affect it?
time of year you go affect it?

thanks
 
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