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To defer or not to defer RAF Preserved Pension
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# 1
Old 13-09-2011, 1:48 PM
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Question To defer or not to defer RAF Preserved Pension

I was 60 yo in May this year. I served 12 years in the RAF between 1969 and 1981. I have a preserved pension which I am now able to claim. £11,000 lump sum tax free + £4000 per year for life + 50% widows pension.

If I take the pension now I will pay 40% tax on the annual £4000. I could use some of it to invest in my current works pension which is a money purchase salary sacrifice scheme but in the current economic climate I don't really want to invest any more in pensions. I am fully funded in Cash ISAs but don't fancy Investment ISAs at the moment.

If I defer my pension, the lump sum and the pension does not earn interest, however, it does retain it's index linking.

If I defer it for 5 years until I'm 65, the lump sum of £11000 + 5 x £4000 will be paid and then continue at £4000+ per year index linked.

My question is this.
If I defer this pension, when the 5 x £4000 is taken, will I be liable to tax at 40% as if it had been paid at the time that it could originally have been taken. In other words, will HMRC see this as deliberate tax avoidance by me failing to claim the pension and therefore pay 40% tax on it.

I am currently over the tax threshold of 40% by about £1500.
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# 2
Old 13-09-2011, 2:08 PM
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I would assume that the 5x4000 will be taxed at the rate you are at in the year it is paid (ie lower I assume), which would mean a tax saving?
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# 3
Loughton Monkey
Old 13-09-2011, 2:45 PM
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It is normally best to take a Final Salary pension at the 'Normal Retirement Age'.

Leaving it 'deferred' is (in a sense) continuing to invest in a pension. Hence personally I think I would take it, and allay the 40% tax by throwing it into the current pension. The lump sum can go into Cash ISA's [if there's room].
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# 4
Old 13-09-2011, 11:30 PM
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Salary sacrifice is pretty profitable: to spurn it seems, as Sir Humphrey would have said, "courageous".
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