state pension advice

phantom44

hi i'm due to retire in aug2009 with a state pension of £140 per week

question 1
intend to carry on for 1 or 2 yrs i know you can freeze your pension for that period and receive a 10% interest at the end minus tax.

question 2
would it be better taking my state pension in august and putting into a saving account of my own

any advice would be most welcome
regards phantom44

Nagiw

phantom44 wrote: »

hi i'm due to retire in aug2009 with a state pension of £140 per week

question 1
intend to carry on for 1 or 2 yrs i know you can freeze your pension for that period and receive a 10% interest at the end minus tax.

question 2
would it be better taking my state pension in august and putting into a saving account of my own

any advice would be most welcome
regards phantom44

If your figures are correct then it sounds like a no brainer - where can you get 8% net nowadays?

oldfella

the interest rate is 2% over bank rate for the lump sum option. The 10% quoted refers to the increase in pension option. This is the increase in pension you would get, but remember you havent received a pension, or interest on the pension so its not that attractive. I worked it out a while ago and you dont break-even for around 20 years. Sometimes you gain more, for example if you would be on higher rate but defer the pension until you are on basic rate. More info on the pension site - http://www.thepensionservice.gov.uk/pdf/spd/spd1may08.pdf

earlgrey_3

As I understand it you have three options, 1) take the pension, 2) defer it and receive an enhancement to your pension of 10.4% for each year of deferrment, 3) defer it and take the amount deferred as a lump sum at a future date with added interest of bank rate plus 2%.

So depends on how long you intend to live and your tax position.

Option 3 is of particular interest if taking the pension would cause you to pay higher rate tax or not be eligible for the age related allowance. When you take the lump sum it's taxed only at your prevailing rate. It doesn't cause you to move into a higher tax band or lose out on the age related tax allowance.

gozomark

earlgrey wrote: »

So depends on how long you intend to live

I intend to live for ever - how long do you intend on living ?

Newly_retired

I was in your position. I carried on working for a couple of years so did not take my state pension as I did not want to pay more tax at that time.
When I stopped work I took my pension at an enhanced rate rather than a lump sum as I have other savings so didn't need the cash, and the extra has made my pension up to full rate, whereas I was not entitled to full rate before. With savings rates being so poor now, I would do the same now, but it does depend on your tax status and whether you have other income eg from a works pension.
None of us knows how long we are going to live, but if you are in good health this is what I would recommend - defer, then take a higher rate.

phantom44

hi thanks for all the feed back on my retirement,
i think my decision is going to be leave my state pension for another 2 yrs
once again thanks
phantom44:j

thor

Maybe earl meant 'expect'?