Retirement Worries

wheezy57

I am due to receive SP early in Jan of next year. I shall be still working full time. I am worried about the tax implications. This extra income will change my coding and personal allowance which would mean I should pay more tax. If I dropped my hours to say 16 from 37.5 what would the implications be with regard to tax? Would I be able to claim Working Tax relief? What would the implications be. Are there any other benefits that could ease the financial burdern?

I dont have any other pension whatsoever as my ex husband protected his (and solely his - he took this out whilst still married) tooth and nail and I wasnt allowed a claim on it. It is now as I gather a very substantial amount - even more than when we divorced 20 years ago. I wasnt advised at any time on pensions or my retirement or my future. So, I am terribly worried about what happens next.

I cannot afford a financial adviser as I dont earn very much money. So any advice would be very greatly appreciated.

jamesd

As a person who reaches their state pension age before 6 April 2016 you can choose to defer claiming your state pension. For each year you do this it will be increased by 10.4%, pro-rated for periods shorter than a year. It's one of the best deals going for those who will not qualify for means tested benefits like Pension Credit in retirement. Whether it is a good deal for you depends on what your total income will be from all pensions combined. If that is expected to be less than about £150 a week it would not be beneficial to defer to get to that level. If you can defer long enough to get significantly above £150 a week it can still be a good deal.

Alternatively, after deferring you can take a lump sum payment that will be taxed at the same rate as the highest taxed Pound in your income at the time.

The income tax personal allowance is gradually reduced starting at an income level of £100,000 a year. I don't have the impression from your post that you are earning that much. If you are it is likely to be best to defer claiming your state pension until you are no longer working.

A person with a suitably low income can claim Working Tax Credits but it's not likely to be best to reduce your working hours just so you can qualify.

Once you reach your state pension age let your employer know so that they will be certain to realise that they should stop deducting National Insurance from your pay.

McKneff

I cant see why you are worried. You are working full time, presumably paying tax over and above your allowance. Your state pension will be added to that and you will pay 20% tax on the amount.
That's it.....

jem16

wheezy57 wrote: »

This extra income will change my coding and personal allowance which would mean I should pay more tax.

You are still entitled to the full tax-free personal allowance of £10,600. That doesn't change just because you are now entitled to a state pension.

What does happen is that you are going to be paid a state pension which is taxable income. However it is paid to you gross with no tax taken off but tax may be due depending on your total income. To get any tax due HMRC alter your tax code by allowing the full personal allowance and then deducting the amount of your state pension. This simply means that you will pay any tax due on your state pension via your work.

So yes you will pay more tax but that is because you will have more income.

If I dropped my hours to say 16 from 37.5 what would the implications be with regard to tax?

You would pay less tax because you now have less taxable income.

Would I be able to claim Working Tax relief?

Are you referring to Working Tax Credit? Do you already claim this?

More info here;

https://www.moneyadviceservice.org.uk/en/articles/working-tax-credit

You usually have to work for 30 hours a week although 16 counts in some cases. You would need to go through the eligibility questionnaire.

Are there any other benefits that could ease the financial burdern?

If you remain working as you are and get the state pension you will have more income than just working or working with reduced hours and a state pension.

So what is the problem?

patanne

If you are healthy then I can definitely recommend deferring your state pension. It doesn't take long to make a significant difference, especially if you are totally dependent on it. I would also make a point of saving the NI that will no longer be deducted. Deferring mine changed my state pension from eek this is going to be tight, to a situation where I've more disposable income than I have ever had.

xylophone

I don't quite understand the problem - I take it that you are not saying that drawing your state pension would take you into 40% tax?

If so, you'd be better off deferring it until you stop work or work few enough hours for that not to be the case?

You should no longer pay NI on your salary after you have reached state pension age.

wheezy57

To those who cannot see the worry or the problem obviously are not in a position to advise. It is a major worry to me....

There are people in the this country or indeed on this forum who do not have family, advisers, tax advisers, pension advisers or any other kind of advisors. If you didnt understand my worries then why did you comment.

wheezy57

McKneff wrote: »

I cant see why you are worried. You are working full time, presumably paying tax over and above your allowance. Your state pension will be added to that and you will pay 20% tax on the amount.
That's it.....

You presume too much.

jamesd

wheezy57 wrote: »

do not have ... any other kind of advisors.

One thing you could consider doing is visiting CAB for a benefits check.

If you can say more about what your state pension forecast says, how much you minimally need to live on and what savings you have as well as whether you own your own home and whether your health and life expectancy are reasonably good for your age we might be able to come up with more suggestions for you.

jem16

wheezy57 wrote: »

To those who cannot see the worry or the problem obviously are not in a position to advise. It is a major worry to me....

Could you explain what it is that is worrying you so much?

There are people in the this country or indeed on this forum who do not have family, advisers, tax advisers, pension advisers or any other kind of advisors. If you didnt understand my worries then why did you comment.

We commented because we are trying to help you. We can only do that if you help us understand what is worrying about paying some extra tax which appears would be more than offset by the extra income. if that is not the case then you need to give us more information.

xylophone

I don't understand because it would appear that with no NI to pay and your state pension on top of your salary you will be better, rather than worse off?

What is the nature of the worry?