Pensions advice on the new changes 2014

jamesd

whitejohn wrote: »

Is that a one off payment of 10% for the time it was deferred (say 10% of £5000 = £500 payment) or does the pension increase by 10% PA for future years (£5000 PA becomes £5500 PA after deferring for a year)

It's 10.4% increase in the amount paid each week that is permanent. It does have a different inflation calculation from the basic state pension but that still leaves it as a great deal.

There is an option to take a lump sum but that isn't usually a good idea. The lump sum option can be useful sometimes, though:

1. When you're deferring and are told that you are going to die fairly soon or have much shortened life expectancy, making deferring for higher income no longer the best option.
2. Some cases where you're still working and want to defer getting the state pension money and paying higher rate tax on it until after you stop working. Occasionally similar reasoning can apply to basic rate tax. This works because you pay tax on the lump sum at your highest marginal rate, but the lump sum doesn't increase that marginal rate. So it won't push you into higher rate tax, unlike normal income.

But for normal life expectancies, the higher income is the most profitable way to go.

whitejohn

But for normal life expectancies, the higher income is the most profitable way to go.[/QUOTE]

That summed it up nicely as I found the charts difficult for working out the best option

whitejohn

gardenia101 wrote: »

Slightly off topic - but I would second this. I'm not retired but do have a visual impairment which has led to certain cowboys thinking they can rip me off far more easily than other people. I now wouldn't dream of employing anyone to do any work in my house that hadn't come with a recomendation from my local Age Concern branch. The local list holder is often giving out lists when I go into our local shop, so you could pick up a lot of work this way.

That's nice to know, I'm still looking in to this but have found nothing at present apart from voluntary work, nothing paid. Did think that my IT skills could be of use in this area too as it fits in with what I already do. As well as other DIY, I've even been involved with security systems and door entry systems etc. Can anyone confirm that paid work is available?

xylophone

http://www.ageuk.org.uk/notts/our-services/business-directory/
Anything like this in your area?

bigfreddiel

jamesd wrote: »

It's 10.4% increase in the amount paid each week that is permanent. It does have a different inflation calculation from the basic state pension but that still leaves it as a great deal.

of course most people know about the 10.4% increase per year you defer - under the 2016 flat rate scheme deffering will only be half as profitable - 5%

now of course by deferring for a year you'll be foregoing £5,500, defer for 2 years and its £11,000+ you need to recoup.

cheers

fj

jamesd

I don't think the deferral rate has been set in the new scheme yet. If it's set much lower than the current rate it'll mostly end up being used by relatively wealthy retirees, not normal ones. That's in part based on who can afford to wait and in part because life expectancy is correlated with wealth, so a person with lower income is more likely to need a rapid payback than someone who is relatively well off. Setting the rate based on whole UK population actuarial expectations would be enough to effectively eliminate use of the option.

If it's set at 5% or so, that'd also be below the long term return on investment for equities, so those who are willing to take investment risk might also not favour deferring.

I have a feeling that the rate is going to be set so it's mostly retiring high grade civil servants, lawyers, doctors and politicians who end up doing it, with the risk of not getting a payback being unacceptably high for others.

If the rate is set as low as 5% it's unlikely that I'd continue to suggest it, instead suggesting not doing it as the option that is the most sensible one, based on such things as investment returns and non-uniform income needs. Though I might suggest it as a hedge for some investors, notably relatively wealthy ones with relatively long life expectancies.

whitejohn

bigfreddiel wrote: »

of course most people know about the 10.4% increase per year you defer - under the 2016 flat rate scheme deffering will only be half as profitable - 5%

now of course by deferring for a year you'll be foregoing £5,500, defer for 2 years and its £11,000+ you need to recoup.

cheers

fj

Not sure about "you need to recoup" are you saying it's not such a good idea because my pension increases by £1000 pa after 2 years but I have already lost £10,000 by not claiming the pension? So it will be it will be 10 years before I break even? Sorry to be a bit dim.

whitejohn

xylophone wrote: »

http://www.ageuk.org.uk/notts/our-services/business-directory/
Anything like this in your area?

Brilliant, thank you, no I could not see it but will try harder now I know it exists