Pension Deferral or not

mpeill

I am approaching retirement at 65 in March 2016, and am looking for advice on the subject of Pension Deferring or not.
I currently draw a work private pension and also have a part time job that together just takes me into the 40% tax bracket. With that in mind, the State Pension I would receive would all be taxed at 40%.
Would it be better to Defer my State Pension until my employed job ends, dropping me back into the lower tax bracket?
With jumping tax bands in mind, how many years would I need to live to break even?
Is this confounded more with the Deferral percentage increase rate dropping to 5.8% in April 2016? Will the 10.4% increase continue to apply in every subsequent year until I die if I defer for 1 year in March 2016, or reduce to 5.8% after April 2017?

greenglide

The 10.4% payable to people with an SPa before 6th April 2016 will continue after that date. It is solely down to the SPa date that the before and after rates apply.

The concept of deferring SP until a point when income tax will be less was always seen as a driver for deferring, even before the 10.4% rate came in. It seems like a good idea.

Remember it is inheritable, in part, by any surviving spouse. Otherwise it is an insurance, isn't it, against longevity, if you don't "make a profit" you won't know!

bouicca21

I'm was a higher rate taxpayer when I became entitled to state pension so have deferred until I drop to standard rate. It seems like a no brainier.

The sums on whether or not to take the lump sum are a different matter.

kidmugsy

mpeill wrote: »

I am approaching retirement at 65 in March 2016, and am looking for advice on the subject of Pension Deferring or not. ..... With that in mind, the State Pension I would receive would all be taxed at 40%.
Would it be better to Defer my State Pension until my employed job ends, dropping me back into the lower tax bracket?

Yes; you'd probably be a mug not to.

mpeill wrote: »

With jumping tax bands in mind, how many years would I need to live to break even?

Assume you defer for three years. For every £100 p.a. of gross pension deferred, you forgo £60 p.a. after tax: so, in three years , £180. Then you restart, getting £131p.a. gross equals £105 p.a. net, which is £25 p.a. better than you would otherwise have had. £180/£25 p.a. = just over 7 years from restarting. Thereafter it's all profit, including any years when your widow might have inherited it. Call it 8 years to make some hand-waving allowance for not having had the money to invest for three years. Depending on your health at the time you can always back out and take your reward as a (taxed) lump sum instead, but you'd be spurning the ridiculously good deal on offer.

mpeill

Thanks for all the replies, particularly from kidmugsy....just the thing I needed. I had assumed the calculations would go something like that, but was sure I'd be missing something and didn't want to dive in without confirmation.

Just confirm please, the 10.4% uplift will continue to apply year after year for me, even though for new applicants after April 2016 it would have fallen to 5.8%?

kidmugsy

mpeill wrote: »

Just confirm please, the 10.4% uplift will continue to apply year after year for me, even though for new applicants after April 2016 it would have fallen to 5.8%?

Yes.

Subject to Mr Balls' plans of course. But if he changes it you can just stop deferring if you want to. Even he would surely hesitate to change it retrospectively.

P.S. I'm deferring at the moment, so my worries about Mr Balls concern other issues, not this one.

johnaka

is this defer/pension transferable should you die to your spouse?

greenglide

is this defer/pension transferable should die to your spouse?

It is inheritable, in part, by a surviving spouse / civil partner.

It is not inheritable by anyone in a relationship not recognised by the state.

kidmugsy

johnaka wrote: »

is this defer/pension transferable should die to your spouse?

Yes. The Extra Pension consists of two bits: extra Basic Pension (100% heritable) and extra Additional Pension (at least 50% heritable). For me I reckon 90% of the total is heritable.