what to do?!

Ross95

Hi


My dad is due to retire in 3 months and has some decisions to make.Can anyone give some starting point advice.
He can claim his state pension which will be £149,has £25000 in a personal pension plan and is going to carry on working for at least 1 more yr,with income of about £15000.They have no savings.
The problem they have to take in to consideration is my mother is 4 yrs from state pension age and will get about £90 and takes home about £50 week from pt job.
Would they be able to claim any state benefits from the government if he didn't carry on working as they would be on low income?
Would an annuity taking 25% tax free be the best option for the private pension pot?
Cheers

jamesd

It is not necessary to buy an annuity with the 75% and it is usually foolish to do so if anywhere reasonably close to state pension age. This is because those reaching state pension age from 6 April 2016 can get a 5.8% increase in their state pension for each year that they defer taking it. This is close to twice the income that the same money would deliver if an inflation linked annuity was purchased, completely blowing the annuity out of the water in value for money.

It is worth using the Citizens' Advice Bureau benefits check but I think that at present his income is too high, unless there is a lot of rent being paid. I think that their combined state pension income is going to be high enough to take them out of means tested benefits, unless rent is involved.

Do check the benefits situation but if I'm right it would be best to defer the state pension and use the personal pension money to live on, then claiming the state pension when not working and when money is getting low.

Both of them should be making pension contributions. See this post to explain how a person not paying income tax can make £720 a year by paying in 2880 net, getting tax relief added then taking out the whole 3600 free of income tax. A tax payer can still gain, just less, but your father might be able to afford to pay in then take it out later, when not working. Since he's over 55 he can take some of his existing personal pension to help to fund this. If he can afford it, or if perhaps you can lend him money (or her) short term there's some nice tax gain to be made, since he can pay in up to his whole earned income in gross contributions.

Until they reach 75 they should each every year just habitually pay in 2880 net then take out 3600 gross a few weeks later. Or more while he's still working and able to pay in up to his earned income level.

Yes, people do get the tax relief even if not a tax payer! It's a great deal.

If he was to stop, he's over pension credit age, which is the woman's state pension age, so yes, they could well be entitled to Pension Credit. The value of his personal pension will be partly counted as income even if he doesn't take any of it, the value used will be either what an annuity would pay (a lousy buy) or what he actually takes out of that is higher. An annuity would pay about 3.5% of the pension pot if they use an inflation linked one, perhaps 5-6% if they used one that is not inflation linked.

xylophone

If your father has been managing satisfactorily to date and intends to work for another year, he might prefer to defer his state pension and drawing on his pension pot.



Has your mother looked into improving her state pension position?

See also https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/417473/pension-flexibilities-dwp-benefits.pdf

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

Ross95

Thanks for your replies very helpful.
I can't find the answer to whether my mother can top up her state pension.She is 61 currently with 30 yrs contributions.Can she pay the lump sum top ups to get to the full 35 yrs?

xylophone

Has your mother obtained a new state pension statement?

If she has thirty years NI contributions, where does the figure of £90 come from?

https://www.gov.uk/check-state-pension

jamesd

The statement will say how many years she can buy. She can also buy future years as she lives through them if work isn't paying enough to qualify her.

I assume that £90 is an old estimate of her basic state pension entitlement, not including any additional state pension that she may be entitled to from working during her life. Since you haven't mentioned any work pension for her I assume that she has never been in a defined benefit (like final salary) pension workplace scheme. If that is right, she would today be entitled to 30/35 times the full flat rate of £155.65, so £133.41 a week so far. It's also worth knowing that the number of years doesn't include the year before the current tax year until around November, so she might already have one year more than she thinks.

The £50 a week from the part time job is less than the lower earnings limit for NI so years worked just doing that job wouldn't count towards the state pension. This means that for up to the six most recent years where that was her only work she probably can buy those years.

It's also worth wondering why your dad would get a state pension of only £149. Does he not have any workplace defined benefit pensions he'd get? Those would typically reduce the state pension a bit, paying that portion themselves. It's worth getting a new state pension forecast for him because if he has anything close to a full working life he'll probably get £155.65 unless he was in a contracted out workplace pension. He may also have a year more than expected, just like her, so might be a bit higher.

For both of them, the older forecasts from more than about six months to a year ago didn't use the new rules, so an update could produce good news.

If these guesses about their situations are right it seems possible that they might together get close to £311 a week from the state pension.