Transfer drawdown to State pension top up

kidmugsy

greenglide wrote: »

But you can defer after paying the top up and get increments paid on the top up amount which are then inheritable as well!

Now that's a good idea. Oh I like that. You'd need to have decided that you want both, but that's a fine way to time them. For the OP, if it's a question of either/or, then deferral's best I reckon.

jamesd

But how do the numbers look if you do both? Can you get a bigger gain than from deferring alone?

greenglide

jamesd wrote: »

But how do the numbers look if you do both? Can you get a bigger gain than from deferring alone?

Presumably if you top up and then defer (can you top up while you are deferred?) you can reach a particular level of income from the state pension quicker? Whether that is a "good iea" I couldnt say.

I can't see many people doing both?

Probably many people who may regard the top up as "a good idea" probably wouldnt consider deferral. The "instant conversion" of a lump sum into an income stream rather than accessing "savings" regularly while note receiving the state pension probably will be attractive to people who have never "managed money" in that way.

olly50

I asked the original question because state pension top up seemed to be better than buying an annuity and I was looking at low risk alternatives.

I have now decided to defer my wifes state pension for 140 weeks and use the £22500 drawdown to pay her, she usually receives about £130 per week(£6756 p.a.), which is her only income other than disability living allowance, so I will require about £162 per week taxed at 20% in order to pay her(162 X 140 = 22680).
Each 5 weeks of deferral should give 1%, so she should receive 28% extra or £1891 per annum, this will make the extra pension tax free and has the added advantage that if I die first, she should be better able to manage, as she would only receive 50% of my company pension. If my wife were to die, the extra £1891 p.a. would be inherited by myself.

stubtoe

kidmugsy wrote: »

Deferring your state pension is much better value than the top up. For every year of deferral you get an extra 10.4% Extra Pension. Live off your drawdown in the meantime. For males, people like to suggest that a deferral of 1 - 3 years is about optimal. Note that your widow can inherit most of your Extra Pension but not of your top up. Two years of deferral will earn you about an extra £1200 p.a. at a cost of £12k forgone. That beats paying £22k for only a smidgen more.

Depending on what other income you have/will have, it can also be mighty tax-efficient.

The problem with deferring is, using kidmugsy's figures for simplicity, that it would take you 10 years before you even broke even compared to simply taking state pension at 65 due to the income you have NOT received. A bird in the hand is worth two in the bush and all that...

jamesd

olly50 wrote: »

Each 5 weeks of deferral should give 1%, so she should receive 28% extra or £1891 per annum, this will make the extra pension tax free and has the added advantage that if I die first, she should be better able to manage, as she would only receive 50% of my company pension. If my wife were to die, the extra £1891 p.a. would be inherited by myself.

That seems like a good plan, glad one of you can benefit from getting it tax free.

kidmugsy

stubtoe wrote: »

A bird in the hand is worth two in the bush and all that...

If you believed that you wouldn't ever save a penny, would you? It's just a mindless remark.

kidmugsy

olly50 wrote: »

I have now decided to defer my wifes state pension for 140 weeks and use the £22500 drawdown to pay her, she usually receives about £130 per week(£6756 p.a.), which is her only income other than disability living allowance, so I will require about £162 per week taxed at 20% in order to pay her(162 X 140 = 22680)..

What a good idea. Hats off, sir.

xylophone

If your wife defers her state pension and has no income at all apart from what you give her, (and her non taxable DLA) she can use the £2880 in/£3600 out pension loophole?

https://forums.moneysavingexpert.com/discussion/5226030

stubtoe

kidmugsy wrote: »

If you believed that you wouldn't ever save a penny, would you? It's just a mindless remark.

"Mindless"? Tad harsh, but point taken as perhaps not the best idiom.

The point I was trying to make was that to get 'value' from deferral you have to survive for a certain number of years to be in a better position than if you simply took state pension at 65, as the higher income you receive later has to play catch up with the income 'lost' during the deferral period.

Clearly, how long this is depends on an individuals circumstances, particularly income tax position as others have pointed out applies to OP.

One possible downside to consider is the loss of future flexibility of not having the drawdown pot sat there to dip into - OP says they have cash ISAs but not how much.