State Pension - Deferral - any thoughts? (Is my question not interesting enough?)

GillyFlower

I shall be 62 in July and could have drawn my State Pension, I have 29 qualifying years which should give me 77%, the reason I left it was because I have been earning a wage and it would have been taxed. My job is coming to an end and I will then hopefully be taking a seasonal job starting March and ending October that could bring in about £4k.

So - I do not have any other form of pension - just savings and mortgage free home. Looking at the pros and cons of Deferral without an 'accountant's head' these options are going through my mind -

1. In July 2007 I would have acquired two years lump sum payment with interest - that should never be less than the Bank England base rate?? However, it will attract tax as soon as I get it if my casual job comes up.

2. What if I do not take the Lump Sum and keep it and instead cash in an ISA to help with everyday living costs? The reason I wondered about this is - could the Deferred State Pension interest earn more money than the ISA? (You can tell I am not good with comparrisons)

3. Leave all cash in Pension until October and then start drawing pension by having instead of a lump sum - extra weekly pension? BUT - and this is the big question is it better to have the money in your hand because what if I died I will not see the benefit of this money as it could take several years to re-coup the money that I deferred?

Has anyone else gone through these thoughts and any feedback would be welcome.

millie

My understanding of the tax position regarding the lumps sum is that it will be taxed in the tax year that you take it. It will not be added to your other income for that tax year for tax purposes and it will be taxed at the rate that you are paying on that years income. If your only income in that tax year is the 4k from your seasonal job plus the £77 weekly pesion, your lump sum will only attract 10% in tax. If you did not have the seasonal job and your only income was the £77, it would not be taxed at all. I hope this is correct because that is what I am planning to do when I reach 60 in 3 weeks time.

GillyFlower

Thank you Millie.

My forecast in May 2004 was Basic State Pension £61.29 and Additional State Pension £30.61 = £91.90 (77% of full basic pension)

I understand that it will be taxed in the year that I take it if I choose a Lump Sum. However, it is Option 2 & 3 - that I want to clarify to help my decision as to what route I take.

Are you saying when you reach 60 you will deferr your State Pension until a later date?

millie

Yes I am deferring my pension, not sure how long for but at least a year. I do not gte a full pension because I paid a married womens stamp for 13 years before having my family. I was under the impression at that time, that as my husband reached 65 before I was 60, I would receive a full pension from his contributions, but I was given the wrong information and I will only get £67 per week. If I took my pension while still working I would pay about £15 per week in tax so I should make a considerable saving on that by deferring. I will only be receiving my pension when I finish work so if I take the lump sum in the following tax year I should pay no tax on it.

GillyFlower

So Millie - what a nuisance you were given wrong advice - but that's not unusual is it? It is for tax reasons that I deferred up to now - but soon I need to make a decision as I will not be working full time.

Will it be necessary for you to take the Lump Sum rather than choose it to be 'spread out' on top of the weekly pension amount? Or is it you consider this option more 'cost' effective?

I wonder if anyone out there knows how attractive the interest rates, if the money is left there, in comparrison to ISA's, etc?