Take it now or later ?

WorzelGummage

Soon I will be 60 and eligible to start receiving a deferred pension from a previous employer.

I intend to carry on working in my current employment.

Tax wise, is it best to...

1. Carry on working AND take the pension at the same time ?

2. Carry on working and NOT take the pension at the moment, bearing in mind that when I do decide to take the pension, it will be backdated to my 60th Birthday

mark55man

Will you suffer acturial reduction for taking it early (which I missed by 2 years in my company) if not I think its a no brainer

However - I suggest you wait until some more experienced advice comes along that's a one company sample - I do think that advice in the presence of that information will be more helpful

Linton

Depends on your employment income, pension income, and where they stand in relation to the various tax bands. It also depends on how the backdate is managed. If its all lumped together in one payment that could cause extra tax problems. But only getting it backdated to your 60th birthday seems a bad deal unless its inflation linked and the backdate is increased by inflation. After all, if you take it from your 60th you can invest it all and get some return.

WorzelGummage

Thanks for the replies,

There will be no reduction in taking it on my 60th birthday.
This date is set in stone and cannot be altered.
No matter when I fill in the acceptance forms, the pension start date will always be backdated to my 60th birthday

If I collect it on my 60th birthday, the total sum of my current earnings + pension income will still come under the higher tax band.
The pension consists of a lump sum tax free, and regular monthly payments (for life) which are taxable.

kidmugsy

When you finally retire altogether will the sum of your old age pension plus the pension from your current employer exceed the personal allowance vs income tax? (YOU'll need to make some assumptions to answer that.) If the answer is "yes" then the currently deferred pension will be exposed to standard rate tax (on reasonable assumptions) and that's the rate it's exposed to at the moment. So I see no reason not to draw it at 60. If you suspect that the standard rate of tax might eventually rise above 20%, then that strengthens the case for drawing it now.

If you don't need the extra income, could it be worth gifting it to your wife (if you are so equipped) so that she can contribute it to a pension? That's because it would be wise to ensure that you both use your personal allowance (vs income tax) in retirement.

atush

I agree with Kid- it could be you'll be taxed on it either way so that would mean take it at 60.

but, if you don't need the income, you could open a personal pension and add this income to it while you are still working (or if you have a spouse with lower pension provision add it to a pension for them as above).

jamesd

Better to take it sooner rather than later. Then you can do things like using your ISA allowance to get it into a tax wrapper and avoid paying tax on later income from the money saved or invested.

If you don't want to accumulate capital in say an ISA, you could take the income and contribute it into another pension to get a second tax free lump sum. There are limits on how much lump sum you can recycle in this way, ask if you're interested in putting in more than £15,000 of lump sum in this way over a three year period. This is effectively a second round of tax relief on the same money, a good deal if you don't need the capital.