Looking for Ideas/Suggestions regarding my Pension options please?

beansy

I wonder if I could ask for some thoughts on the following please?

I have started to receive my private pension (£9,300), I also have a unit linked AVC which is currently valued at just over £78,000 (which obviously can go down as well as up), will become eligible for my state pension at the beginning of November this year and I work part-time on a nil hour bank contract basis (as and when required) . My ideal is to work up to 3 days pw when I am required but I also have the flexibility to work 4 days pw on occasions, with spells when I may not be needed to work at all, or just 1 or 2 days pw.

I am managing ok on my pension, and will use the income from my bank work towards holidays and providing occasional financial support for our son when needed.

However, my dilemma is, should I defer my state pension for around 3 1/2 yrs which would take me to the new SP, increasing my SP for when I eventually decide to take it and leave my AVC invested (which is currently in a paid up status via Equitable Life but in Clerical Medical funds) – or ? take smaller annual sums of money from it and look for something to reinvest it in, or are there any other ideas/alternative options which may spring to mind please?

My husband is younger than me, so the prospect of the deferred SP seems a good one, since I believe this is transferrable to my spouse on my death. His personal pension doesn’t become payable until he reaches 65 unless he takes the actuarial reduction for each year he takes it early which is quite a lot to loose.

Thank you in advance for any contributions received.

:T

jamesd

The increase in the state pension is 10.4% per year deferred and mostly inheritable by a spouse for those who reach state pension age before 6 April 2016. From that date the rate is 5.8% and it is not inheritable. Both increase with CPI. It appears that you have not yet reached state pension age [STRIKE]and won't do so before 6 April 2016 so you'd be under the new rules[/STRIKE] but will do in time to be under the current inheritable 10.4% rules.

Deferring for three to five or perhaps a few more years is a good move to boost income if you are in normal good health.

Leaving the AVC invested is useful if you don't need it but that investment doesn't have to be inside a pension. You could, say, take the 25% tax free lump sum and gradually reinvest that inside an ISA as protection against possible future increases in income tax rates. You could use flexi-access drawdown and use that as income to fund new pension contributions and build up another tax free lump sum, making a tax gain on the operation. Note that if you take anything beyond the tax free lump sum your annual allowance for pension contributions will be reduced from £40,000 to £10,000.

"Personal pension" has a specific meaning in pension language. It refers to the invested type of pension like your AVCs, but not associated with a company. You husband appears to have a defined benefit pension rather than a personal pension. No big deal because it's clear from context what he has but worth letting you know just so you don't accidentally give someone the wrong idea at some future time.

You're right about the actuarial reduction for defined benefit schemes. One useful approach that you two could take is for him to start a personal pension in addition to what he has at work. Then once that has sufficient value he can retire without having to draw on the defined benefit pension until its normal retirement date.

Another approach that can be taken is use of a mortgage, perhaps an equity release mortgage that allows drawing on money as needed then repaying later. You could draw on it for the years between both becoming retired and all pensions being in payment, then pay it off over say twice as long as the borrowing duration. This has the effect of shifting future income to the nearer future, increasing planning flexibility.

mgdavid

James, the OP said:

beansy wrote: »

..... will become eligible for my state pension at the beginning of November this year ......

kidmugsy

beansy wrote: »

I … will become eligible for my state pension at the beginning of November this year … However, my dilemma is, should I defer my state pension for around 3 1/2 yrs ...

If your health is good and you're not from a short-lived family, it would probably prove to be a wonderful investment: nobody else will pay you anywhere near 10.4% p.a. on what is effectively a CPI-linked annuity. In rough terms you'll break even ten years after starting the pension and will thereafter be in profit until - well, telegram-from-the-Queen and beyond, for all anyone knows.

Of course, you have to trust that future governments won't remove the link to CPI, or welch on paying the pension, but there are so many codgers in the electorate that that would be a reasonable gamble. The 3.5 years is a reasonable period for deferral although that's a bit of a fluke, because the new SPA doesn't matter to someone who will get the old-style State Retirement Pension.

beansy wrote: »

My husband is younger than me, so the prospect of the deferred SPA seems a good one, since I believe this is transferrable to my spouse on my death. His personal pension doesn’t become payable until he reaches 65 unless he takes the actuarial reduction for each year he takes it early which is quite a lot to loose.

The Extra Pension you'll get will come in two parts: (i) extra Basic Pension: this is 100% heritable by your husband, and (ii) extra Additional Pension, which is 50% heritable. How much is (i) and how much (ii) depends on your particular case: get a pension forecast and it will show you. In my case my Extra Pension should be 90% heritable by my calculation, reflecting the fact that I spent many years in final salary pension schemes and was therefore "contracted out" of SERPS/S2P.

greenglide

well, telegraph-from-the-Queen and beyond, for all anyone knows.

Probably not from the (current) Queen;)

kidmugsy

greenglide wrote: »

Probably not from the (current) Queen;)

No, but who knows how many of her successors might fancy gender reassignment?

xylophone

will become eligible for my state pension at the beginning of November this year

https://www.gov.uk/tax-national-insurance-after-state-pension-age/overview

should I defer my state pension for around 3 1/2 yrs

See https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/372517/dwp024-102014.pdf

My husband is younger than me

Reaches SPA in single tier? Is he over 55?

https://www.gov.uk/government/news/millions-more-offered-free-pension-statement

See also https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181235/derived-inherited-entitlement.pdf

kidmugsy

xylophone wrote: »

See also https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181235/derived-inherited-entitlement.pdf

Aha, so whether or not the OP's husband could gain by "inheriting" her extra pension depends on whether he will reach SPA after April 5th 2016, and on a calculation of his entitlements under the old-style and new-style arrangements. So it's more complicated than I stated above.

jamesd

kidmugsy wrote: »

See also https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181235/derived-inherited-entitlement.pdf

Aha, so whether or not the OP's husband could gain by "inheriting" her extra pension depends on whether he will reach SPA after April 5th 2016, and on a calculation of his entitlements under the old-style and new-style arrangements. So it's more complicated than I stated above.

Why? It seems suitably clear, my bold:

"Deferral:
47. Under single tier, there will be no opt ion to inherit any of the Contributor’s deferred State Pension. This means that any deferrals which commence after the introduction of single tier will not be inheritable.
48. However, where the Contributor reaches SPa in the current scheme, the surviving Dependant will be able to inherit under the existing rules even if they are in the single tier. The deferral amount, if increments, will not be included in the cap, and so the Dependant will receive that in addition to any additional State Pension."

This is very significant for beansy's situation because her deferring can lead to her husband after her death getting more state pension from her deferral than he could get by deferring himself. This can tend to favour her deferring for longer, knowing that he'll be OK if she dies first and both benefit while she's alive The current rules 100% inheritance of the increase in basic state pension and 50% inheritance of the additional state pension parts are useful. The cap of £162 of total additional state pension increasing with CPI needs to be considered, though, I assume, because I think that applies under current rules as well, even though paragraph 48 seems to say it's not.

kidmugsy

jamesd wrote: »

Why? It seems suitably clear.

Thanks, jamesd. It seems that the only time I'm wrong is when I confess to an error I haven't made.:)

A note for non-initiates: "The deferral amount, if increments .." refers to taking the reward for deferral as Extra Pension rather than as a lump sum. I had thought they might have given up using "increments" to mean Extra Pension, but apparently not.

beansy

xylophone wrote: »

https://www.gov.uk/tax-national-insurance-after-state-pension-age/overview



See https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/372517/dwp024-102014.pdf



Reaches SPA in single tier? Is he over 55?

YES

https://www.gov.uk/government/news/millions-more-offered-free-pension-statement

See also https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181235/derived-inherited-entitlement.pdf

Thank You everyone for your very helpful replies.

I don't profess to undestand all that has been shared, but I will certainly look through all of your links and see how much of it becomes clearer.
:beer:

As things currently stand, I am very fortunate to be both quite fit and healthy for my age and am more often than not seen by my neighbours darting up the road to catch my bus, late as usual LOL. I am happy to carry on working for as long as this continues and it doesn't become a chore. In fact, when I took retirement just prior to my 60th birthday I was not mentally prepared for it, having worked full time for the majority of my life and with my husband still in f/t employment there was a big void in my life and I have to say I suddenly also felt quite worthless. Which is what made me decide to go back to work on a flexible basis and part-time.

Although my husband and I both worked f/t I actually earned quite a lot more than him, despite the responsibilities his job entailed, unfortunately this is not reflected in his salary. But we have been very blessed and in addition to joining our company pensions we began paying into an AVC alongside this to make up for the fact that we didn't contribute to the pension scheme during the first 6 years of our employment, due to lack of funds.

In addition to this, thanks to stumbling across MSE just over 8 years ago we have been fortunate enough to have benefitted from quite a number of moneysaving tips, ie Carpet bagging and 0% CC balance transfers, thereby enabling us to contribute to what was then TESSA's, to TOISA's, to ISA's and now NISA's LOL, all of which at the time were paying exceptional interest rates.

So, as you mentioned James, we are privileged enough to still have some ISA funds, although not paying very well at the moment, they do provide us with a tax free wrapper and last year we used some of this money to purchase a property which we refurbished and are now renting out. We also took advantage of the Solar panel loophole a couple of years ago and are well on our way to recovering the purchase price and will eventually be making a nice income stream from this too.

So my thoughts are, that as I would like to enjoy some retirement with my husband before time catches up on me, by deferring my SP while it is not needed, in a few years time when I start to take it, my husband could either reduce his working hours and/or finish work earlier without the need to take his "defined benefit pension" (I'm learning, LOL) by utilising my AVC in the best way possible until he either needs to take his pension fund or reaches a better break-even financial position. If this makes sense.

We only have 1 son, who will eventually inherit our estate, but in the meantime we do provide financial support to him when he is struggling for work.