Drawing State Pension Early

caveman38

Earlier I cut and pasted this from an article that I cannot now find. I can find no mention of it on an internet search and need you guys to clarify or dismiss it.
"If you start your benefits early, they will be reduced based on the number of months you receive benefits before you reach your full retirement age. If your:
• full retirement age is 66, the reduction of your benefits at age 62 is 25 percent; at age 63, it is about 20 percent; at age 64, it is about 13.3 percent; and at age 65, it is about 6.7 percent.
• full retirement age is older than 66 (that is, you were born after 1954), you can still start your retirement benefits at 62 but the reduction in your benefit amount will be greater, up to a maximum of 30 percent at age 62 for people born in 1960 and later"


Another question I would like to ask is. Can you open a SIPP at 61 for 5 years (receive State Pension at 66) and benefit from any tax privileges if you stop working at 62. The money being put in cash as a lump sum now.

kidmugsy

The quotation is nothing to do with UK State Retirement Pension: it might be about US Social Security.

AlanP_2

caveman38 wrote: »

Another question I would like to ask is. Can you open a SIPP at 61 for 5 years (receive State Pension at 66) and benefit from any tax privileges if you stop working at 62. The money being put in cash as a lump sum now.

Can't help on SP question sorry but as for SIPP question:

You can ONLY contribute up to your earned income level in the tax year up to a limit of £40k Annual Allowance (can be higher if you have unused Annual Allowance from previous years that you can bring forward).

Paying it in from savings as a lump sum is not an issue provided you have the income to cover it.

The pension provider then reclaims 20% Basic Rate tax on your payment and adds it to your pot. If you are a Higher Rate taxpayer you claim another 20% back direct from HMRC.

You are then able to withdraw 25% as a tax free lumps sum and use the remaining 75% to provide income that will be set against your Tax Free Allowance along with any other income so you may or may not pay tax on it depending on sums involved (draw out as required or set up an annuity).

Taking anything over the 25% tax free lump sum and various other limits kick in so if that is where you may be ask about the implications on here first.

If you do not have any earned income you can contribute £2880 gross which will be made up to £3600 by the provider's 20% tax reclaim process.

You refer to a SIPP but unless you are looking at less mainstream investments than Funds / Shares / ITs etc. you don't need a SIPP a Personal Pension of some kind would suffice.

xylophone

Your post is entitled "Drawing State Pension Early" - the earliest you can draw your state pension is your state pension age and that's that.

Your reference to an article appears to apply to a person drawing an occupational pension before Scheme Retirement Age?

You are contributing to a SIPP now with a lump sum and will contribute no more until you take benefits at age 66?

Once the administrators receives the money they will claim basic rate tax relief - if you are a higher rate tax payer you will need to reclaim higher rate relief from HMRC.

You can leave your money within the SIPP until you choose to access it.

http://www.hl.co.uk/pensions/sipp/what-is-a-sipp
might be worth a look for information.

caveman38

OK then based on that information.
My wife who is 61 and will not receive her SP till she's 66. She has a personal pension pot of £100K which as I have already mentioned on another thread will supplement her SP as she has no company pension.
She intends to work say for another 2 years and grosses £15K. Although (on her behalf) I initially wanted to stay in cash although advised differently on these forums - sorry for being contrary. Will now consider something different like a SIPP. It will only run for a few years but if what you are saying is true will benefit from an added chunk from IR.
If she withdraws £30K (to meet the max amount) or maybe more if it is done in tax years.
Could you guys humour me and give a couple of examples of how this will operate, whether it is too late to benefit from growth. Whether the only advantage is the tax break and what the drawbacks are or have I goy tit all wrong. Sorry for my naivety.
I BTW have my own company pension, will draw SP next year and have my own pot. This has caused some amazement in other threads that we have independent finances. We've been married 40 years and I've always paid the bills etc. and she has worked part time for her own spending money which is what she wants to maintain during her pension years without answering to me. She is extravagant and that is an issue with me - but not with her money.
Please help with an answer and examples as to how she can extract £30-40K to diversify her funds.

xylophone

Is the idea that your wife will make the maximum possible contribution to a SIPP while she still has earned income?

caveman38

xylophone wrote: »

Is the idea that your wife will make the maximum possible contribution to a SIPP while she still has earned income?

If as stated in an earlier post that the maximum you can put in is 100% of your wages. Then for the remaining 2 years of her working life she could put in 2 X £15K out of her pot.

xylophone

in 2 X £15K out of her pot.

To clarify, you don't actually mean pot ( ie money in a DC pension) as normally understood but your wife's cash savings?

She does not currently have a pension of her own other than state pension?

She will earn £15000 gross in this tax year and next?

She could choose to open a SIPP and pay in an amount equal to her net income from her savings and the provider would claim the tax relief.

She could choose to keep the whole contribution in cash if she wished, regarding the tax relief as "interest" or she could choose to invest in funds etc - the information provided by HL is worth a read.

caveman38

xylophone wrote: »

To clarify, you don't actually mean pot ( ie money in a DC pension) as normally understood but your wife's cash savings?

She does not currently have a pension of her own other than state pension?

She will earn £15000 gross in this tax year and next?

She could choose to open a SIPP and pay in an amount equal to her net income from her savings and the provider would claim the tax relief.

She could choose to keep the whole contribution in cash if she wished, regarding the tax relief as "interest" or she could choose to invest in funds etc - the information provided by HL is worth a read.

Understood. Wrong word and it is her savings. She can invest as you say invest her net earnings for the next two years and assuming she can draw on other investments leave the money there and deposit £2,880 in subsequent non working years and have deposited £3,600.
If left in cash - as you suggested - do any providers give a reasonable fixed term rate.
I cannot see what the drawbacks are to be honest. Surely apart from maybe settling for low interest rates are there any. I say that because if you can continue to do it till you reach 75 , why don't more people take advantage. I read that it is possible to withdraw the money straight away and do the same the following tax year. Is that true and could I therefor as someone with a Co. Pension do this. Have I missed something.
Many thanks for your patience.

xylophone

do any providers give a reasonable fixed term rate.

With a fully flexible SIPP there can be the opportunity to nominate a deposit account within the SIPP but the administration fee on such SIPPS is higher than on low cost SIPPS such as that offered by HL. That said, there have been times in the past when HL offered some fixed rate deals on cash but with the rates on deposit as they are at the moment I cannot see this happening again in the near future.

If you take the example of an HL SIPP as things stand at the moment, your wife could leave the money in cash, regard the tax relief as her return and also receive a tiny amount of interest. There would be no administration fee for holding the money in cash.

She could opt to invest in funds etc but then there would be an administration fee.

If you wanted to go down the SIPP route you would need to investigate providers and options.

http://moneyweek.com/personal-finance/isas/stocks-shares-isa-providers-cost-comparison-table/

With regard to your company pension do you mean that you have a DC group personal pension or a DB pension or what exactly?

caveman38

With regard to your company pension do you mean that you have a DC group personal pension or a DB pension or what exactly?


Ignore that bit of the post. It occurred to me that the proceeds from SIPP are earnings and not interest. I will be on £20K+ from SP and Co. Pension (final salary scheme) next year.
Thanks for all your advice.