Retirement - state pension deferral

Steve_xx

My friend will be 65 in November. He probably wont retire at that point. His state pension looks to be at approximately £150. He could defer it and get a bit more when he starts to take it or he could take whatever he was due to in a lump sum at some point in the future. When he stops work this £150 state pension will be his only source of income as he does not have any company pension.

The question is, say he carried on working until the start of the new tax year in April 2016 and then retired. If he then took the deferred pension, aprroximately 19 weeks worth, as a lump sum and then carried on getting the £150 a week state pension each week thereafter for the remainder of the tax year then he'd likely have a total income for the 2016-17 tax year of around 10,650 which is just about at the tax threshold so he wouldn't have to pay income tax would he?

Whereas, if he carries on working beyond this November and also triggers his state pension then potentially he would pay tax on all of his state pension at 20% because he currently works full time and earns in excess of the 20% tax threshold. His pretax earning from his job are circa 15k.

Am I right on both counts here?

xylophone

The personal allowance increases to £10800 in the tax year 2016-17 so if his total income in that year will be under the threshold he should be a non-taxpayer.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/413970/TIIN_4168_income_tax_personal_allowances_and_basic_rate_limit.pdf

If he continues to work until the end of the tax year and earns £15,000 and draws his state pension then his tax code should be adjusted so that the tax due on the state pension is paid.

HMRC might do this automatically once the state pension came into payment but if not he should contact them so that tax was not underpaid.

http://webarchive.nationalarchives.gov.uk/+/http://www.hmrc.gov.uk/pensioners/howyourpension.htm

xylophone

Incidentally, once he retires, he might want to check his eligibility for pension credit.

https://www.gov.uk/pension-credit/overview

Steve_xx

xylophone wrote: »

The personal allowance increases to £10800 in the tax year 2016-17 so if his total income in that year will be under the threshold he should be a non-taxpayer.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/413970/TIIN_4168_income_tax_personal_allowances_and_basic_rate_limit.pdf

If he continues to work until the end of the tax year and earns £15,000 and draws his state pension then his tax code should be adjusted so that the tax due on the state pension is paid.

HMRC might do this automatically once the state pension came into payment but if not he should contact them so that tax was not underpaid.

http://webarchive.nationalarchives.gov.uk/+/http://www.hmrc.gov.uk/pensioners/howyourpension.htm

So, in essence you would say I am correct in that it would be advantageous taxwise for him to defer taking his state pension until we get into the new tax year?

Also, I think by by deferring taking it for 12 months he could get a lump sum plus 2% above bank base rate in interest.

I understand your points regarding declaration to HMRC should he trigger his pension at 65 and then go on working.

Steve_xx

xylophone wrote: »

Incidentally, once he retires, he might want to check his eligibility for pension credit.

https://www.gov.uk/pension-credit/overview

Yes, point taken. He may be just a or a quid or so over what the government says he needs to live on, or he may be just under. For this very reason I think he has discounted getting a slightly higher state pension by deferring taking the pension and then getting a 1% increment for each 5 week period that he defers it by. He reckons that by deferring and taking such increments it could void him from Pension Credit for sure.

xylophone

See also http://www.chadneybulgin.com/budget-summary-march-2015/

under Personal Savings Allowance.

Current situation re tax on savings income here https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/293747/Fact_sheet_template_-_10__tax_9.pdf

If he draws his state pension in this tax year while he is working, then it will be taxed (through PAYE probably if HMRC are advised) at 20%.

If in the next tax year his total income is below the threshold ( and see above re savings income, if any), then he will be a non taxpayer.

xylophone

Remember that come April the minimum income for pension credit could also change.

He needs to check his situation at the time.

http://www.ageuk.org.uk/Documents/EN-GB/Factsheets/FS48_Pension_Credit_fcs.pdf?dtrk=true

Steve_xx

xylophone wrote: »

Remember that come April the minimum income for pension credit could also change.

He needs to check his situation at the time.

http://www.ageuk.org.uk/Documents/EN-GB/Factsheets/FS48_Pension_Credit_fcs.pdf?dtrk=true

Ah yes of course. So he will need to check closer to next April.

Thanks for the links provided, excellent.

Yes he does have some savings, circa 10k and so I reckon he will get some Pension Credit Savings element even if he didn't get Pension Credit. Though I think I read that they are phasing this out slowly but surely?

Pdman

Tax allowance for 16/17 expected to be £11000. Google "summer budget 2015".

xylophone

Tax allowance for 16/17 expected to be £11000. Google "summer budget 2015"

https://www.gov.uk/government/news/summer-budget-2015-key-announcements

Thanks - even better!

xylophone

Pension Credit Savings

According to the Age UK factsheet

 "People reaching State Pension age from 6 April 2016 will no longer be
entitled to the Savings Credit part of PC. Anyone already entitled to Savings Credit from this date will continue to qualify for it."