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Short Deferral of State Pension?

Oblivion
Posts: 20,248 Forumite


I'm 65 in early March next year (2014) and will be able to claim a full state pension of £110.15 plus additional £6.68 = £116.83 per week. I also have a Local Government pension of about £23k so the tax due on my state pension will have to be taken from that via a tax coding adjustment at the time.
Now I'm wondering if it might save an awful lot of faffing around with HMRC if, rather than start mucking around with tax code changes so near the end of 2013/14, I opt to defer claiming my state pension for the minimum 5 weeks which will take me into a nice new 'clean start' tax year 2014/15 ... or is the act of making a short deferral going to introduce more administrative hassle and complications than it actually solves?
OK, I realise I'll be initially forfeiting 5 weeks pension which would be £584.15 and it would take roughly 10 years to recoup that and break even from the extra 1% of pension I will be given. But are there any other issues I should consider?
Now I'm wondering if it might save an awful lot of faffing around with HMRC if, rather than start mucking around with tax code changes so near the end of 2013/14, I opt to defer claiming my state pension for the minimum 5 weeks which will take me into a nice new 'clean start' tax year 2014/15 ... or is the act of making a short deferral going to introduce more administrative hassle and complications than it actually solves?
OK, I realise I'll be initially forfeiting 5 weeks pension which would be £584.15 and it would take roughly 10 years to recoup that and break even from the extra 1% of pension I will be given. But are there any other issues I should consider?
... Dave
Happily retired and enjoying my 14th year of leisure
I am cleverly disguised as a responsible adult.
Bring me sunshine in your smile
0
Comments
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At the moment you have to actually claim the state pensions, so just don't claim. Easy. No hassle involved.
Assuming normal life expectancy it's likely to be better to defer for 1-3 years for a male and 3-5 for a female. And of course assuming you can afford to defer.
With £23k of work pension in payment you'd qualify for Flexible Drawdown. That lets you withdraw 100% of the amount of money in a personal pension at any time. 25% of the pot can be taken as the usual tax free lump sum. The remainder is normal taxable income in the year in which it is taken. You can't make or have made on your behalf any more pension contributions from the time you elect to use Flexible Drawdown.
This means that there could be some benefit to you in running some savings into and then out of a personal pension to get the tax relief. If it's all at 20% income tax rate then you'll make about 5% on the deal - the 20% income tax saved on the 25% lump sum.
It's one way that you can effectively eliminate the income tax you'd otherwise pay for the 2013/14 tax year if you have enough to pay your taxable income into the personal pension.
The catch is the charges of using flexible drawdown. Those vary by provider but are likely to be a couple of hundred Pounds. To recoup £200 in charges from the 5% tax gain would take at least £4,000 paid in before you made any actual gain.0 -
Some useful advice there james thank you. Unfortunately my health is not good and it really would be a bit of a gamble deferring my state pension for any serious amount of time since it takes about 10 years to reach a break even point and start gaining from the deal.
The Flexible Drawdown idea does look very tempting though.... DaveHappily retired and enjoying my 14th year of leisureI am cleverly disguised as a responsible adult.Bring me sunshine in your smile0 -
Unfortunately my health is not good and it really would be a bit of a gamble deferring my state pension for any serious amount of time since it takes about 10 years to reach a break even point and start gaining from the deal.
I read the rules as implying that my widow will inherit 91% of my Extra Pension when I die (i.e. 100% of the Extra attributed to Basic Pension, and 50% of the Extra attributed to Additional Pension).
If I'm wrong I'd be glad if someone would warn me.Free the dunston one next time too.0 -
my health is not good and it really would be a bit of a gamble deferring my state pension for any serious amount of time since it takes about 10 years to reach a break even point and start gaining from the deal.
It might be worth saying a bit more about the health issues and perhaps one of the IFAs might give some rough thoughts on whether it's worth getting an IFA to investigate this possibility.
The death benefits situation after a transfer and if capped income drawdown is used could be interesting. That would eliminate the ability to use Flexible Drawdown (because you wouldn't have the guaranteed income) but on death a spouse could inherit the whole remaining pot into a pension of their own. Or a non-spouse or a spouse could have it outside a pension pot after a 55% tax charge. Also possible would be a scheme pension (pays out more while alive than capped drawdown), enhanced annuity, or partial use of a level (not RPI) enhanced annuity to get to the Flexible Drawdown income threshold, then Flexible Drawdwn after that.0
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