lLump sum or weekly income on state pension

robmar0se

I have deferred my state pension for just over 3 years, now I have been advised to take it. My maths says I have todate forgone approx £18k (pre-tax), whereas I would now need to live for 8.5 years to recoup this, and be in profit - in simple terms ignoring the tax take.

The lump sum funnily enough equates to the pension forgone, but of course significantly less after tax.

I just wondered from an actuarial point of view the longlevity of folks of 68? I know its a bet, but just want to narrow the odds. I don't have a pressing need for the cash at the moment.

Lump sum or weekly increment, which is it?

jamesd

For males at 65 the cohort life expectancy is a round 87, for females around 89. Optimal deferral time is 2-3 years for a male and 3-5 for a female for the income increase to maximise the payout over the expected lifetime. Longer deferral for those with unusually good genetics or jobs with high life expectancy (lawyers, say) and shorter for those with less good (labourers, those with life-shortening medical situations).

Do you have other pensions? Any of them personal or work defined contribution/money purchase pensions? Any work pensions or annuities that could take your total guaranteed income to £20,000 or more once the state pensions are included? I'm asking because you might be able to benefit from flexible drawdown if you were to make pension contributions, get tax relief, take a 25% tax free lump sum then take the other 75% out using flexible drawdown.

robmar0se

jamesd wrote: »

For males at 65 the cohort life expectancy is a round 87, for females around 89. Optimal deferral time is 2-3 years for a male and 3-5 for a female for the income increase to maximise the payout over the expected lifetime. Longer deferral for those with unusually good genetics or jobs with high life expectancy (lawyers, say) and shorter for those with less good (labourers, those with life-shortening medical situations).

Okay that answers my question, take the weekly increment........

you might be able to benefit from flexible drawdown if you were to make pension contributions, get tax relief, take a 25% tax free lump sum then take the other 75% out using flexible drawdown.

I'll look into that to see how the mechanics work, thank you

gadgetmind

robmar0se wrote: »

The lump sum funnily enough equates to the pension forgone, but of course significantly less after tax.

Note that the lump sum doesn't push you into higher tax brackets. If your income is within your personal allowance (or you can arrange for it to) then you can get the lump sum tax free.

Similarly, if you have a higher age related allowance, the lump sum doesn't trigger "claw back" of this.

robmar0se

gadgetmind wrote: »

Note that the lump sum doesn't push you into higher tax brackets. If your income is within your personal allowance (or you can arrange for it to) then you can get the lump sum tax free.

Similarly, if you have a higher age related allowance, the lump sum doesn't trigger "claw back" of this.

Good overall advice, not applicable to me personally as both options incur the same tax clawback - a lump sum of £18000 could certainly in many cases for people on the standard rate push them into the 40% bracket. Good point!

Thank you

gadgetmind

robmar0se wrote: »

lump sum of £18000 could certainly in many cases for people on the standard rate push them into the 40% bracket.

That's why HMG decided that the entire lump sum would be taxed at your highest rate and not push you into higher bands as they want people to defer.

My cunning plan is to use drawdown, defer SP for a few years, and then when I take the lump sum, "turn down" my drawdown so that I'm just under my personal allowance. I'll be in my 70s by then and will greatly enjoy my first (and last) year of paying no tax since I was in my teens.