Defered pension help please

rickywimp

My wife derered her State pension and worked for further 5 years we want to take lump sum and now realise that not like an annuity the lump sum is taxed at rate of tax she pays seems unfair when we effectively loaned the state for 5 years !. our questions are

Can she transfer the lump sum to me as the lower tax payer?

If not are there any ways of reducing the tax on the defered lump sum

is it better to draw the lump sum before this April 6th we self assess or after April 6th?

As she wold have to commence taking her state pension when she draws he lump sum can she then stop the state pension for a period as the rules say one is allowed to stop a state pension once? she can legitamately say she is only stopping the once having previously only defered it.

Lastly the age allowance tax allowance apparently isbeing withdrawn another stealth tax on us!!

jamesd

It's usually better not to take the lump sum but instead to take the higher pension payments. Half of women of normal health aged 65 will live to an age greater than 88 so the extra income is more likely to be a good deal unless she is in poor health.

The lump sum is taxed at the highest rate for other income in the tax year it's taken. If all other money is taxed at basic rate, the whole of the lump sum is also taxed at basic rate, even if the total income would go into the higher rate range. if she's paying higher rate tax it'd all be taxed at higher rate, similarly if it's top rate. If she's paying the top 50% rate it'd be better to wait until that drops to 45%.

The lump sum can't be transferred to you or anyone else.

You can defer taking the state pension once after having started to take it. If she never started to take the state pension she can start now and still defer again once more. Five years is likely to be the upper limit for a woman of average health and normal life expectancy to gain from deferring, so it's perhaps not in her best interests to defer beyond five years unless she has reason to believe that she'll have a longer life expectancy than usual.

The extra income can be contributed into a personal pension like any other income and subject to normal limits.

The age allowance is being replaced by higher personal allowances for all.

kidmugsy

rickywimp wrote: »

My wife derered her State pension and worked for further 5 years we want to take lump sum and now realise that not like an annuity the lump sum is taxed at rate of tax she pays seems unfair when we effectively loaned the state for 5 years !

It's not unfair at all: she deferred the income tax she would have paid on the SP and will be paying it in the tax year when she draws the lump sum. You haven't told us whether her tax rate in, say, 2013-14 will be lower than over the previous five years. If it is, you may be quids in. And you do pay tax on an annuity, you know.

rickywimp wrote: »

Can she transfer the lump sum to me as the lower tax payer?

After withdrawing it, yes. Before, no.

rickywimp wrote: »

is it better to draw the lump sum before this April 6th we self assess or after April 6th?

As I implied above, it depends on her tax rate in those two tax years. (Whether there is time to draw it before April 6th I don't know.)

rickywimp wrote: »

As she wold have to commence taking her state pension when she draws he lump sum can she then stop the state pension for a period as the rules say one is allowed to stop a state pension once? she can legitamately say she is only stopping the once having previously only defered it

Yes, but the rewards of the second deferment must be taken as extra pension not as a lump sum. Since at the moment the extra pension is excellent value and the lump sum is poor value, this needn't upset you.

rickywimp wrote: »

Lastly the age allowance tax allowance apparently isbeing withdrawn another stealth tax on us!!

Only up to a point, since the personal allowance for all taxpayers is being raised to equal (nearly) the allowance that only pensioners currently get. This seems a good idea to me- I can't for the life of me see why a pensioner with an income of, say, £26k p.a. should get a higher allowance than someone younger earning, say, £13k p.a. If you know of a justification, do tell us: other than "gimme, gimme, gimme" of course.