extra pensions for pensioners

theredsalamander

At 67 years old I draw a private pension and state pension, and also am self-employed. So I have capacity to save.

My inexpert reading of the budget says that the new pension rules make short duration stakeholder pensions a way for tax efficient saving. Is this right? In the past I've been put off by the need to buy an annuity.

Help please!

kidmugsy

Yup, it looks attractive. You'll have to decide whether you want to squeeze in a contribution before this tax year ends on 05/04/2014.

For next tax year you might prefer to take your time until all the legislation is in place, just in case there are any changes from the current proposals.

Jenniefour

kidmugsy, could you give some rough calculation/formula for deciding whether it's worthwhile. I'm in a similar position, age 61, have small private pension and still working self employed. Will get state pension next year, which I won't need and could be put into a pension. I'm currently overpaying my (relatively small) mortgage and was about to increase the overpayment again substantially.

OP, sorry for getting in on your thread.

Triumph13

Jenniefour wrote: »

Will get state pension next year, which I won't need and could be put into a pension.

Probably much better to just defer the state pension instead as it would increase by 10% for each year of deferment.

Jenniefour

Triumph13 wrote: »

Probably much better to just defer the state pension instead as it would increase by 10% for each year of deferment.

Thanks, Triumph13. I had this in mind as an option prior to the budget. So it looks like it's wise to do that anyway.

Any ideas on money I was going to put into bigger overpayments on mortgage? Although overpaying mortgage even more appeals I wonder if this is the best use of the money, given the tax advantages while I am still working. Don't intend to retire for at least three years. Am already overpaying my mortgage by £300pm on top of the monthly payment of £635pm. Have small mortgage, less than 10% of house value.

kidmugsy

theredsalamander wrote: »

At 67 years old I draw a private pension and state pension, and also am self-employed. So I have capacity to save.

My inexpert reading of the budget says that the new pension rules make short duration stakeholder pensions a way for tax efficient saving.

Again, as T13 says, deferring a State Retirement Pension, and taking the reward as Extra Pension looks very attractive, especially for anyone who (i) Has no objective reason to expect a short lifespan, or (ii) Has a spouse available to 'inherit' (most of) the Extra Pension after the pensioner's death. See
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/210220/DWP024.pdf

kidmugsy

Jenniefour wrote: »

Thanks, Triumph13….

Any ideas on money I was going to put into bigger overpayments on mortgage?

1. Re deferral of State Pension
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/210220/DWP024.pdf

2. Re mortgage overpayments: I'd say it depends on (i) the interest rate you are paying. At (say) 2.5% p.a. or less I'd be in no hurry; at 3.5% or more I can see why you might want rid of it.

And (ii) If there is a good chance that you could time the drawdown of a new pension so that you'd not have to pay income tax on it, then that would be very attractive indeed.

Of course, if clearing the mortgage raises your spirits, fair enough. We found that what raised our spirits wasn't clearing it; rather it was when we realised that we could clear it if we wanted to.

uk1

Unless I am going barmy, it is even better than 10.4%.

Isn't that just the first year? Doesn't the deferred part of the pension then increase? As the 10.4% will increase by triple lock or whatever replaces it once you start taking it, the return actually increases each year. ie making the return 10.4% .. then perhaps 10.7% ... then 11%.

Is that not correct?

Linton

I dont think so. When you come to take your pension I believe they just multiply the number of weeks delayed by the appropriate %. Compounding involves difficult maths!

kidmugsy

uk1 wrote: »

Unless I am going barmy, it is even better than 10.4%.

Isn't that just the first year? Doesn't the deferred part of the pension then increase? As the 10.4% will increase by triple lock or whatever replaces it once you start taking it, the return actually increases each year. ie making the return 10.4% .. then perhaps 10.7% ... then 11%.

Is that not correct?

The 10.4% is simple interest, not compound interest. If you are old enough to care, you should be old enough to remember how the distinction was taught to you at school.

As for inflation, the extra pension you get is based on the pension you would otherwise have been getting at the instant when you restart the pension, so it is indeed index-linked. But then so is the pension forgone, so it's simplest to look upon the whole thing as an index-linked annuity paying better than three times what a commercial annuity would cost you.

atush

I would put more into pension, but what is your rate and when is it due to be paid off? How much is the balance?

I agree with triumph, that deferring for the 10% uplift is a great idea.