deferring state pension?

kidmugsy

saver861 wrote: »

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

Golly, you do like talking tripe. My calculation was exactly what it said it was. You misinterpreted it and then complained that I should have done some other calculation instead. On top of which, you failed to engage with my point that you were plain wrong in the first place. Clearly your Vanity Quotient is much larger than your Intelligence Quotient.

saver861

kidmugsy wrote: »

Golly, you do like talking tripe.

Talking tripe way better than eating it .... that I would agree

kidmugsy wrote: »

My calculation was exactly what it said it was. You misinterpreted it and then complained that I should have done some other calculation instead.

Nope - I made an observation - not complained in the slightest. Your post is still on the thread - re-read it. It refers to a £6,000 being deferred to £7,200 - no indication it was referring to a longer period than the one year being discussed.

kidmugsy wrote: »

On top of which, you failed to engage with my point that you were plain wrong in the first place.

Oh I think I have engaged your point. You stated first that the additional pension would reduce the tax burden to which I stated increased income will increase the actual or potential tax burden - as has been from day dot. Your subsequent example referred to a ceasing of £15,000 salary which is an obvious reduction of income and thus a different slant to your earlier post.

As I have stated above, the scenario you outline is valid and anyone in that position would do well to follow up on your suggestions. However, I also pointed out that this scenario would be somewhat less likely than a more general position of someone on an occupational pension of around £6,000 and taking a state pension which carries them over the PA threshold.

kidmugsy wrote: »

Clearly your Vanity Quotient is much larger than your Intelligence Quotient.

Ok ... well, I don't know if you have created some sort of math formula and worked it out those quotients on that magical calculator .... but if you have done due diligence and you are satisfied your quotients are correct and accurate, then who am I to argue ...

Alter_ego

There are some advantages aside from those above. I deferred in Oct 2014 after drawing SP for 7 years. This immediately, gave me a full refund of all the income tax paid this year, it also made my tax code change which took my private pension out of income tax completely until I reclaim my SP.
I am spending savings which were earning 2% in return for the 10.4% pa increase in my SP. I hope to remain deferred for 3 yrs which will give about 35% on the SP I had been drawing.
I fully intend to live to double the pension I have forfeited.
In addition I will be able to transfer £1060 of my personal allowance to my working wife (In April) that's another £200+ pa on her pay ticket

kidmugsy

Alter_ego wrote: »

In addition I will be able to transfer £1060 of my personal allowance to my working wife (In April) that's another £200+ pa on her pay ticket

That's a fine wheeze.

jamesd

saver861 wrote: »

As I have said many times, the fundamental situation is that individual circumstances determines the potential rewards or losses of deferring.

And of course I agree with that. But look at our posts here and see which of us did the specific calculations for the situation to get the poster the specific answer that they were after.

Of course I'd already done the generic calculations before writing what I did about deferring beating overpaying on a mortgage. Do you agree in general that deferring is going to beat overpaying on a mortgage for those getting the 10.4% rate? For the 5.8% rate?

saver861 wrote: »

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 problem with that is that just 56% of pensioners have an occupational pension of either DB or DC type, 69% of pensioner households. That's 44% with no occupational, not even DC, pension to use up their personal allowance. So I agree with you that it's a majority but it's a pretty slim majority. the difference between average and mean needs to be considered as well, given that the all pensions income was a mean of £132 a week but median of £85 a week in 2011/12, so £6,864 and £4,420. That median would still mean some taxable pension income and at that level the deferring money would be taxable. I don't know why your £10,452 figure is so much higher than those I've linked to, maybe it is because that only includes defined benefit schemes, not all occupational pensions.

jamesd

saver861 wrote: »

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.

Yes, 56% will have such a pension. It's also necessary to consider the income tax that can be saved during the years of deferring the state pension due to tax threshold effects.

In the poster's case the deferring of the state pension reduces the income tax bill on the not taken state pension of £5,881.20 by £1,176.24 in the working year. Then the ongoing increase in state pension is also tax free at £613.10.

Had that higher pension income not been tax free it would still have taken 1176.24 / ( 0.2 * 613.10) = 9.6 years before the tax on the increased pension matches the tax saving in the deferred year.

Given that the median pensioner household income is around £18,000 it's likely that the opportunities to benefit from the personal allowance tax threshold by deferring are widespread and substantial.

The pension freedoms will increase those opportunities by allowing more deferring to an income still below the personal allowance, while drawing still tax free taxable money from a defined benefit/personal pension pot to meet income needs.

jamesd

saver861 wrote: »

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.

And of course much of that is going to be defined contribution occupational not defined benefit. For such a pension the individual can choose the timing of taking the taxable portion to increase their chance of benefiting from a tax threshold. All they need to is draw the maximum possible taxable money below the personal allowance while deferring, then not have to take it later when it's taxed. So I don't agree that this reduces the number of people who can benefit.

If we were to stick to the majority of defined benefit occupational pensions that can't productively also be deferred I'd agree that those do reduce the chance of gain.

saver861 wrote: »

Let me reiterate, it is still valid, but its unlikely for most people in a position to consider deferment.

I disagree. Given that 44% of people don't even have an occupational pension and that many occupational pensions are defined contribution, I think that most people will have the opportunity to benefit.

I also think that the number who can benefit is going to increase as DC replaces DB and if the trend of increasing personal allowance continues, and one major political party at least is proposing a personal allowance in the £15,000 range. That combination of higher allowance and higher part of income that can be timed to exploit it is helpful and can be a significant driver of improved returns from deferring via the tax gain during deferral.

saver861 wrote: »

I'm simply saying don't go with the sweeping statements and double check your own personal circumstances

So why didn't you do the calculations? You had the information required at the time of your post but instead of doing the calculations you posted a generic caution about break-even times.

How about you actually doing those calculations for both the poster's specific case and more generic deferring vs mortgage overpaying then saying whether those numbers agree with the assertion that for the poster and in the general case the deferral is the option that is likely to produce the best outcome?

saver861

jamesd wrote: »

So why didn't you do the calculations? You had the information required at the time of your post but instead of doing the calculations you posted a generic caution about break-even times.

How about you actually doing those calculations for both the poster's specific case and more generic deferring vs mortgage overpaying then saying whether those numbers agree with the assertion that for the poster and in the general case the deferral is the option that is likely to produce the best outcome?

To take some of your points:

One reason I have not done specific calculations on this forum is that I am not an expert in the field. I would describe myself as a layman but with higher than layman's interest and knowledge on financial matters. In terms of plumbing - it is the reverse. I am a layman with lower than average layman's knowledge and interest in plumbing matters but I am equally unqualified in both cases.

On the other hand, you go into great detail in outlining your reasons and calculations to a query. So, from a short paragraph of text outlining some query, you will often consider many aspects and figures to prove a case for better financial economy for a poster.

Clearly that is your prerogative of course but, personally, I think it is unwise.

Not because of any doubt of the accuracy of your figures, which may, or may not be correct, but its highly possible the original query is not always fully reflective of the posters overall situation. Its a public forum. Meanings get lost in text translation, etc etc.

I have done calculations for friends and family where I see them face to face and can ask further questions for clarification etc. Even then, I tell them, "do not, do not, do not, do not, do not rely on my figures and have them checked and double checked".

So, for example you ask me if deferring at 10.4% or even 5.8% would be more beneficial than paying off the mortgage. Well, if your mortgage rate is 3% then you don't need to be a genius to answer that question - but the fact you are asking me direct might be reflective of your confidence in my abilities!!

I also know that 0% is better than 3%!! From the outset of 0% credit cards we had the bulk of our mortgage on CC's for years - going back 20 years or so. By doing so, we saved considerably and got rid of the mortgage way sooner than we would otherwise have. However, that took a lot of diligence and precision, and for most people I know personally, it would not have worked, because they lack the interest and diligence necessary to make it work by continually shuffling credit cards etc.

I've just put £2880 into a SIPP. Some nice man or woman at HMRC is going to put another £720 in to my SIPP, bless him or her! The original £2880 is on a 0% credit card!

So as per your suggestion, someone could take out a ten year fix mortgage and defer the pension etc and be in profit. That may work very well numerically. However, take my missus, she has no interest in such matters, so the same scenario in her specific case, paying off the mortgage would be preferable to the ongoing hassle of the 10 year fix albeit, being in profit. For her, clearing the mortgage would be one less financial issue to deal with as well as being mortgage free.

Then there is the risk. Take someone who does go down that route and takes out the ten year fix and defers the pension. They die in year two. So, the spouse may be left with mortgage charges, as well as losing out on the gain etc etc.

So, in short, it is not always about absolute numbers. Yes, it is about taking best advantage of the financial situations, tax benefits etc. I'm on this forum because I'm a financial geek - fact is, majority of people out there are not. For me, money saving is a hobby and I'll spend considerable time, e.g opening bank accounts for a free £100. Most people would not consider the hassle anywhere near worth it. On the other hand, some people will go to B&Q and buy some taps and put them in themselves thus saving themselves £100, whereas I will get a plumber.

evergreen

I have read this thread and it is interesting. However the tax issue won't affect me as I just about pay basic 20percent at the moment so taking my pension now or in 3 years time will not change my tax rate. Does this mean if I decide to defer my state pension for say 1 year, I can then choose after the year to take a lump sum or have a lifetime increase to my pension of 10.4 percent. Thanks

Alter_ego

evergreen wrote: »

Does this mean if I decide to defer my state pension for say 1 year, I can then choose after the year to take a lump sum or have a lifetime increase to my pension of 10.4 percent. Thanks

Yes exactly
Also if you don't claim at SP age for a while, then claim, you can then defer a 2nd time.