Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    • Dal Whinnie
    • By Dal Whinnie 9th Jul 17, 11:36 PM
    • 146Posts
    • 56Thanks
    Dal Whinnie
    Deferred State Pension
    • #1
    • 9th Jul 17, 11:36 PM
    Deferred State Pension 9th Jul 17 at 11:36 PM
    I deferred taking my state pension since I was still working. I recently obtained a state pension forecast which advises me that I have the option of topping up my weekly pension or taking a lump sum.
    Can anybody advise how a lump sum would be taxed?
Page 1
    • xylophone
    • By xylophone 10th Jul 17, 1:33 AM
    • 23,447 Posts
    • 13,633 Thanks
    xylophone
    • #2
    • 10th Jul 17, 1:33 AM
    • #2
    • 10th Jul 17, 1:33 AM
    See http://www.litrg.org.uk/tax-guides/pensioners-and-tax/what-state-pension-deferral
    • badmemory
    • By badmemory 10th Jul 17, 1:38 AM
    • 951 Posts
    • 988 Thanks
    badmemory
    • #3
    • 10th Jul 17, 1:38 AM
    • #3
    • 10th Jul 17, 1:38 AM
    Please bear in mind that unless you are in poor healthn additional pension is a much better deal than the lump sum, especially in view of the current poor interest rates that savings are attracting.
    • Dal Whinnie
    • By Dal Whinnie 10th Jul 17, 10:32 AM
    • 146 Posts
    • 56 Thanks
    Dal Whinnie
    • #4
    • 10th Jul 17, 10:32 AM
    • #4
    • 10th Jul 17, 10:32 AM
    Thank you both.
    Regarding the investment strategy, the figure I have been quoted mean that the additional weekly amounts will take 9 years to equate to the lump sum (assuming both taxed at the same rate). So, allowing for interest, in excess of 10 years. I agree that I need to take all these elements into account
    • Dazed and confused
    • By Dazed and confused 10th Jul 17, 7:01 PM
    • 1,867 Posts
    • 830 Thanks
    Dazed and confused
    • #5
    • 10th Jul 17, 7:01 PM
    • #5
    • 10th Jul 17, 7:01 PM
    Is your 9 years taking into account any tax which may be due on the enhanced pension and any tax which may be due on the lump sum?
    • Dal Whinnie
    • By Dal Whinnie 10th Jul 17, 9:32 PM
    • 146 Posts
    • 56 Thanks
    Dal Whinnie
    • #6
    • 10th Jul 17, 9:32 PM
    • #6
    • 10th Jul 17, 9:32 PM
    I calculated the 9 years using the gross numbers but the answer would be the same providing the tax rate payable on the lump sum is the same as that which you expect to pay on the annual pension. If you expect the rate payable on the lump sum to be higher than the rate you expect to pay on the future pension receipts then the payback period would be shorter whereas if the rate payable on the lump sum is likely to be higher than on the ongoing pension then the payback period is longer.

    My original question was to confirm how the lump sum would be taxed. From the link posted by xylophone it appears that the lump sum is taxed at your marginal rate (taking account of investment income as if this was fully taxable) and not added to your other income. I am assuming that any capital gains are ignored in arriving at this figure but perhaps need to double check this.
    • xylophone
    • By xylophone 10th Jul 17, 10:55 PM
    • 23,447 Posts
    • 13,633 Thanks
    xylophone
    • #7
    • 10th Jul 17, 10:55 PM
    • #7
    • 10th Jul 17, 10:55 PM
    http://www.litrg.org.uk/tax-guides/pensioners-and-tax/what-tax-do-i-pay-my-state-pension-lump-sum

    There are several examples in the above.

    Any charge is to income tax, not capital gains tax.
    • badmemory
    • By badmemory 11th Jul 17, 2:02 AM
    • 951 Posts
    • 988 Thanks
    badmemory
    • #8
    • 11th Jul 17, 2:02 AM
    • #8
    • 11th Jul 17, 2:02 AM
    But is the lump sum a good deal for you. Unless you have either expensive debts or a shorter life expectancy then it probably isn't. You need to crunch the numbers - or let someone on here do it for you.
    • Dal Whinnie
    • By Dal Whinnie 11th Jul 17, 7:17 AM
    • 146 Posts
    • 56 Thanks
    Dal Whinnie
    • #9
    • 11th Jul 17, 7:17 AM
    • #9
    • 11th Jul 17, 7:17 AM
    http://www.litrg.org.uk/tax-guides/pensioners-and-tax/what-tax-do-i-pay-my-state-pension-lump-sum

    There are several examples in the above.

    Any charge is to income tax, not capital gains tax.
    Originally posted by xylophone
    I haven't had a chance to read right through this article as yet but I hadn't been able to find any guidance on this matter so thanks again.
    I understand that any lump sum is liable to income tax not capital gains tax, I was just pondering whether any capital gains could potentially impact the rate of income tax payable on the lump sum.
    • Dal Whinnie
    • By Dal Whinnie 11th Jul 17, 10:12 PM
    • 146 Posts
    • 56 Thanks
    Dal Whinnie
    Please bear in mind that unless you are in poor healthn additional pension is a much better deal than the lump sum, especially in view of the current poor interest rates that savings are attracting.

    But is the lump sum a good deal for you. Unless you have either expensive debts or a shorter life expectancy then it probably isn't. You need to crunch the numbers - or let someone on here do it for you.
    Originally posted by badmemory
    Many thanks again for your comments. I have various discounted value spreadsheets to use and as previously indicated (assuming current interest rates) the break even point would be just over 10 years and since my current life expectancy is 13 years then if no other factors come into play then I would be slightly better off taking the increased pension but there are a number of factors that also need to be taken into account, including the following:
    • How will lump sum be used
    • How will regular income be used
    • Will lump sum be invested or used to replace existing debt
    • If investing the lump sum how risk averse are you
    • How will interest rates and markets move going forward
    • If a lump sum is used to buy say, a new car, then what sort of alternative financing would be available
    • What tax rate will be payable on lump sum
    • What tax rate do you expect to pay on the increased pension going forward
    • What changes will be made to benefits and financing of care fees in the future
    • badmemory
    • By badmemory 12th Jul 17, 3:26 AM
    • 951 Posts
    • 988 Thanks
    badmemory
    Use of the lump sum is a good point. As for changes to benefits & care fees I really don't expect that to turn out well for any other than the rich. You will need to consider deprivation of assets if you wish to give money away. For example my state pension was increased by over £3k per year by deferring it. I could give a grandchild (if I had one) £3k per year for the next 10 years out of income - no deprivation of assets. If I had taken the lump sum and given my non-existant grandchild £30k - that could be deprivation of assets.

    As for borrowing money - despite being retired for a few years now and not having much income- I have had no problem getting both a bathroom and a car (at the same time) on 0% finance for a period.

    I have discovered the major advantage to being retired over being employed is that no-one can sack you, make you redundant or make your life such unadulterated hell that you walk out. Your income is guaranteed, you can't suddenly lose it. The only time you have a trouble borrowing is if you need a long term loan.
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

123Posts Today

2,343Users online

Martin's Twitter