deferring state pension?

kidmugsy

saver861 wrote: »

I think your calculator needs it's batteries changing ...

If he has a £6k state pension deferred for a year at 10.4% it will be an additional £624 i.e. £6624 when he starts taking it and not £7200.

I said nothing about deferring for one year. I said that he'd defer until his pension was (say) £7200 (i.e. roughly two years.

Are you always this foolish?

saver861

kidmugsy wrote: »

I said nothing about deferring for one year. I said that he'd defer until his pension was (say) £7200 (i.e. roughly two years.

The OP asked specifically about deferring for one year. If you are using a two year example then your figures are around correct.

The basic premise is still that each individual circumstances will determine the probability of reaching and exceeding the break-even point. Factors such as health, breaching the tax-allowance bracket, etc etc all factor towards the actual break even point.

kidmugsy wrote: »

Are you always this foolish?

Your query would suggest that is your conclusion - if you feel you are superior and happy with that assessment then I'm happy to concur ....

Meanwhile I'll just continue to express my opinion for which you will surely make allowances ...

saver861

jamesd wrote: »

£3,000 of income at 3% with RPI increase takes around £100,000 in a pension pot to buy at an annuity rate of 3%. That's well in excess of the typical pension pot size.

Kidmugsy's case was pretty generous, most low earners won't have accumulated a hundred thousand Pounds in their pension pot.

Well we have been around this one before - and nothing has changed. As I have said many times, the fundamental situation is that individual circumstances determines the potential rewards or losses of deferring.

The average occupational pension for 2013 was £10,452 - a slightly skewed average with majority of people getting about £6,600. Assuming that to be correct, then in the majority of cases state pension will take them over the PA threshold, thereby increasing the time to break even.

One in seven will retire without any pension and the majority of them will be women. In such cases its unlikely deferment would be affordable in any case.

You usually don't agree with my figures as per your example, but again, do be aware, they are not my figures or assumptions, but from the Pension Policy Institute.

bowlhead99

saver861 wrote: »

The OP asked specifically about deferring for one year. If you are using a two year example then your figures are around correct.

Your contention when kidmugsy said "And if it takes you from paying tax on all the pension to paying tax on only some of it then the break even point is even closer" was along the lines of "an increase in income will not reduce your tax burden, people have never found a way of making this work", implying he is misguided to say that tax can be avoided by deferring large chunks of money from one year to another.

Clearly however if you decide not to take pension in a year when part or all of the pension would have been taxed at 20% or 40% and instead are able to take it later - when a bit that would have been taxed at 20% or 40% is now taxed at 0% or 20% - the deferment can be very valuable.

When he explained this with some example figures you then said it was his calculator was broken and he was just fiddling the figures to make it work, presumably still refusing to accept his assertion that one reason people defer their entitled income is for legitimate tax planning purposes which can be quite valuable.

The fact remains that if you get given an amount of money in one year and you have the choice of getting it instead split over multiple years - e.g. give up 6000 now and get it back as 600 extra for 10 years or 300 extra for 20 years or whatever - the exact number is irrelevant. The concept is that you now don't have 6000 in the current year at your marginal tax rate which is a known saving. If any part of the 6000 that comes back to you in those multiple years is charged at less than the 6000 would have been charged at, you are a winner.

So for example the 6000 in year one, might have been half at 0% and half at 20%. By deferring it you might be able to receive £600 the next year which all fits into the 0% band. Whether the £600 is actually 624 or 1200 or whatever is not really an issue, the concept is whether more than half of the [600 or 624 or 1200 or whatever] fits into the 0% band, because only half of it fitted into the 0% band originally and so getting more into the lower band is a win.

saver861

bowlhead99 wrote: »

Your contention when kidmugsy said "And if it takes you from paying tax on all the pension to paying tax on only some of it then the break even point is even closer" was along the lines of "an increase in income will not reduce your tax burden, people have never found a way of making this work", implying he is misguided to say that tax can be avoided by deferring large chunks of money from one year to another.

In the general case, an increase in income either increases your tax burden or takes you closer to a PA threshold. That's simply my point on that specific issue. The individual circumstances will determine the benefits or losses.

bowlhead99 wrote: »

Clearly however if you decide not to take pension in a year when part or all of the pension would have been taxed at 20% or 40% and instead are able to take it later - when a bit that would have been taxed at 20% or 40% is now taxed at 0% or 20% - the deferment can be very valuable.

Agree 100% - if your circumstances creates that scenario.

bowlhead99 wrote: »

When he explained this with some example figures you then said it was his calculator was broken and he was just fiddling the figures to make it work, presumably still refusing to accept his assertion that one reason people defer their entitled income is for legitimate tax planning purposes which can be quite valuable.

If you have a look at the earlier posts - if we were talking about a one year deferral on a £6,000 State pension then the ongoing benefit would be £624 per year which was the OP's question. As I said if Kid was using a two year example then his figures would be correct. However, with two years then that increases the yearly benefit and thus tax burden - BUT, if per your scenario that it was still at 0% it would not matter.

Again, my point is it will only matter if you cross a threshold.

bowlhead99 wrote: »

So for example the 6000 in year one, might have been half at 0% and half at 20%. By deferring it you might be able to receive £600 the next year which all fits into the 0% band. Whether the £600 is actually 624 or 1200 or whatever is not really an issue,

As above, 100% agree if your circumstances are such that you can do that.

For the majority of people considering deferring, they will have an existing occupational pension and other incomes. If state pension takes them into the next tax threshold then the breakeven point may be longer than the usual '9 and a bit years' quoted.

Anybody considering deferring should therefore take that into consideration as to whether that impacts on their circumstances.

Not that difficult really....

bowlhead99

saver861 wrote: »

Well we have been around this one before - and nothing has changed. As I have said many times, the fundamental situation is that individual circumstances determines the potential rewards or losses of deferring.

Of course, individual circumstances determines the potential rewards or losses of deferring.

We are all agreed on that and you said the same back in your post #15 when you mentioned a few examples where the break even point could be further away - you said "still can be a good return depending on your life span but thats the calculated decision". The advice to do a calculated decision rather than simply do something given as general advice on a forum or in a newspaper, is completely sound.

My reading of the thread was that you suggested some reasons why it may be a longer breakeven for some people so was not a no-brainer (I agree) and others (kidmugsy) pointed out that it could well be a shorter breakeven for some (I also agree). All is fine at this point.

You then challenged kidmugsy's assertion, accused his calculator of being broken when he proved his point, and then when jamesd attempted to prove the point with more elaborate worked examples you ended up saying "well we have been around this before, nothing has changed, of course it depends on circumstances".

This basically sounds like you are admitting you had misunderstood kidmugsy's point. You were thinking that the 'depends on circumstances' simply meant that in some circumstances it would be less lucrative than being a no-brainer, when in fact the 'depends on circumstances' means it could be even more lucrative than being a standard no-brainer. I guess more-of-a-no-brainer is a kind of tautology though .

Effectively for people retiring in recent years, deferring - only if you can afford to be without the cashflow was a bit of a no brainer for many (not all, of course, so needs a review of personal circumstances). Under the new system it will be less of a giveaway so it requires even more careful review of personal circumstances. I

f you're saying the average employer or personal pension provision was around the £10k mark in 2013 then the average person is paying full 20% tax on pretty much all of their state pension and so if they defer and receive slightly more income per annum it doesn't change the fact that they are paying 20% on it so doesn't shift the breakeven position whatsoever.

If as you say, that £10k figure is a mean and not a median, so most people have £6600 personal/employer pensions, then 'most people' will only be paying 20% tax on some of their basic state pensionand so a shift to getting more each year fully taxed at 20% will push the breakeven point out, a bit, before those 'most people' move into profit for the rest of their lives.

But the 'year 1' effect of being able to avoid tax on initial state pensions when you have other employment income or personal pension drawdown in the same year is all quite useful as it can either avoid tax outright (kidmugsys example of someone with 3k personal income on top of state pension is completely reasonable) or at least kick the can down the road in terms of receiving taxable income in the 20% or 40% bracket.

I think we are 'all on the same page' in terms of it being something that people need to run the numbers on carefully before they decide whether it will work for them - and obviously even more so with the new, less desirable, rules coming in for people who didn't already qualify for the old scheme.

mgdavid

saver861 wrote: »

........
Anybody considering deferring should therefore take that into consideration as to whether that impacts on their circumstances.
.....

I'm reminded of that classic Basil Fawlty line, said of Sybil:
'....specialist subject The Bleedin' Obvious'

saver861

bowlhead99 wrote: »

you said "still can be a good return depending on your life span but thats the calculated decision". The advice to do a calculated decision rather than simply do something given as general advice on a forum or in a newspaper, is completely sound.

Agreeing with you all the way bro ... people are jumping to conclusions on the deferral with some thinking they will be in profit earlier than is actually the case (assuming they live long enough).

bowlhead99 wrote: »

You then challenged kidmugsy's assertion, accused his calculator of being broken when he proved his point,

Nope - the kid suggested in his post that a £6,000 deferred pension would be £7,200. As the thread was about a one year deferment and then this could have been deciphered as a miscalculation. Kidmugsy has since clarified he was referring to two year deferment.

I assumed he was using a calculator ... perhaps not but which ever instrument was used the calculation was suggesting incorrect totals.

bowlhead99 wrote: »

and then when jamesd attempted to prove the point with more elaborate worked examples you ended up saying "well we have been around this before, nothing has changed, of course it depends on circumstances".

My point there to jamesd was that we had discussed this previously some time ago rather than on this specific thread.

bowlhead99 wrote: »

This basically sounds like you are admitting you had misunderstood kidmugsy's point.

Nope - my understanding of kidmugsy's point is the same now as it was when I read it first - other than his clarification of the two year deferral. The scenario outlined by the kid is correct and thus that scenario would be effective in those circumstances. However, as I stated in my post earlier, increasing income does either increase the tax burden or bring you closer to a threshold. His subsequent scenario outlined the possibilities - however, there is no overall increase in income. The ceasing of the £15,000 salary and introduction of the state pension £6,000 plus £3,000 in other pensions in the example is an overall decrease of income of £6,000. Thus a reduction in tax burden as agreed.

The point being that, while that is a perfectly valid scenario, only 11% of people are working over state pension age. If we take the figure that an average occupational pension of £6,600 then that further reduces the number of people that kidmugsy's scenario applies. Let me reiterate, it is still valid, but its unlikely for most people in a position to consider deferment. For those who it does apply, the figures for deferment are good and their decision would be down to their health.

bowlhead99 wrote: »

Effectively for people retiring in recent years, deferring - only if you can afford to be without the cashflow was a bit of a no brainer for many (not all,

Agreed but of those there are some who are under the illusion that their break even point is closer than it actually is. The headline in this is usually in profit after just over 9 years, so Bill Smith down the road thought he will be on the right side on when he turns 74 when in fact his circumstances are such that it is another number of years before he gets there. He still may have made the same decision but he 'did' make a decision on incorrect data.

bowlhead99 wrote: »

If as you say, that £10k figure is a mean and not a median, so most people have £6600 personal/employer pensions, then 'most people' will only be paying 20% tax on some of their basic state pensionand so a shift to getting more each year fully taxed at 20% will push the breakeven point out, a bit, before those 'most people' move into profit for the rest of their lives.

Yes - it only impacts if a tax allowance threshold is crossed. If they stay in the same bracket, be that 0%, 20% or 40% there is no impact.

bowlhead99 wrote: »

I think we are 'all on the same page' in terms of it being something that people need to run the numbers on carefully before they decide whether it will work for them - and obviously even more so with the new, less desirable, rules coming in for people who didn't already qualify for the old scheme.

Agreed. There are three scenarios:
1. People defer and live long enough to get the benefit.
2. People defer and don't live long enough
3. People defer under the incorrect impression of the break even point.

Its the third group that my comments are aimed at - so, I'm simply saying don't go with the sweeping statements and double check your own personal circumstances quite apart from the health issues.

Clearcut .... to keep it brief ....

saver861

mgdavid wrote: »

I'm reminded of that classic Basil Fawlty line, said of Sybil:
'....specialist subject The Bleedin' Obvious'

And as is actually the case though ... common sense is the least common of all .....

HarryD

As one or two people have suggested, deciding to defer has more to do with your tax position than when the breakeven point would be assuming your tax rate will be the same when you take your pension as it is now.

For example, I am a 40% taxpayer and will defer my state pension until I am a basic rate taxpayer. I might then take it as a lump sum so it's all taxed at 20%. Someone clever can maybe work out the breakeven point in that case.

Or if my company pension scheme goes under maybe I'll take the state pension then, at the increased rate, not as a lump sum. So, broadly, it becomes an insurance policy.