Where to put nest egg

Financial worries or just looking for better value for money? Consumer champion Fergus Muirhead can help

Q I’VE been in the NHS superannuation pension for 32 years, the 1995 scheme, which means I can retire at 60.

Due to stresses of the job as a manager, I was thinking of retiring early next year. I know my lump sum is tax-free but wondered if my monthly pension is the same?

Also, where could I invest some of my lump sum which would provide a good return? Sheena Watson

A THE NHS superannuation scheme is a final salary scheme, or at least it is for the part that you are a member of. Your benefits are based on a combination of the years that you have worked and the salary when you leave. In your case, you will have a pension that should be 32/80ths of your final salary, whatever that is. You should, as you say, also be entitled to a lump sum that should be paid to you free of tax. To answer your first question, your annual pension will be taxable. If it is your only income, then you will be entitled to a personal allowance, which is the first part of your income that you won’t have to

Consider the options when investing lump sum from your pension scheme

pay tax on. This year the allowance is £11,850. So if your pension is £20,000, you will not pay tax on the first £11,850 but you will on the balance of £8150.

When you start to receive the state pension, this will be added to your NHS pension to work out your total income, and your total income will be liable to tax – although, as mentioned above, you will not pay any income tax on the amount up to your personal allowance.

You should be able to complete a form online called a BR19 and this will tell you your state pension entitlement and when you will receive it. This is a useful exercise since it will help you plan your actual income more accurately.

I’m not sure from your email whether when you retire early next year you will

be under 60. If you are, then your pension may be reduced a bit because you are retiring before your normal retirement date. This isn’t always the case, so check with the pension scheme whether you are affected or not.

The second part of your question is more difficult to answer. It depends on lots of factors and you haven’t given me enough information to answer specifically for your circumstances. If you want to drop me another email, I’ll provide specific answers in a future column.

In general terms, you need to consider a number of issues before deciding where to invest your lump sum – and this applies to anyone reading this who has money to invest.

The first thing to look at is how long you are able to tie the money up for and how quickly you may need access to it.

If you might want it in six months or so, or you might need to access it quickly, then you might want to keep it in cash – perhaps in an ISA, if you haven’t used your allowance this year, and in the account or ISA that pays the highest rate of interest you can find.

If you’re unlikely to need it for five or 10 years, then you might want to be a bit more adventurous and perhaps look at a stocks and shares ISA or something like an investment bond.

These investments can be linked to the stock market and so can fall in value as well as rise, which is why they are not suitable if you need access quickly, or if you’re investing for a very short term. You also need to consider the tax position of any investment that you have. ISAs, for example, are tax-free, but direct investments into unit trusts or shares might attract tax on any gains.

You also need to consider all of the other assets you have to see how they fit into the mix. Do you have a house, and if so can you take money out of that if you need it? Do you have other savings in the bank or another property you own?

There is no right answer, it’s about considering all of your circumstances and coming up with the most suitable option.