Paying £2880 into pension when retired

jamesd

Yes, you can delay.

For those in normal good health who don't have plenty of guaranteed income I usually like deferring because it's a not particularly expensive way to get extra guaranteed income.

nigelbb

jamesd wrote: »

Yes, you can delay.

For those in normal good health who don't have plenty of guaranteed income I usually like deferring because it's a not particularly expensive way to get extra guaranteed income.

I disagree. Take your pension just as soon as you are eligible. The benefit from deferring is small & nobody knows how long they will live so better a bird in the hand.

As a simplistic example the full new State Pension is £168.60 a week. Defer for 52 weeks & you’ll get an extra £9.74 a week (just under 5.8% of £168.60). However you have missed out on £8767.20 by deferring a year & it will take seventeen years to recoup with the extra pension of £506.48 per year.

The fact that there is no real advantage to deferring is unsurprising as the government isn't giving you a bonus just working on actuarial tables. The average life expectancy of a 65 year old man is 19.6 years while for a woman it's 20.4 years. The total sums paid out to pensioners will be much the same whether they defer or not.

brewerdave

nigelbb wrote: »

I disagree. Take your pension just as soon as you are eligible. The benefit from deferring is small & nobody knows how long they will live so better a bird in the hand.
The fact that there is no real advantage to deferring is unsurprising as the government isn't giving you a bonus just working on actuarial tables. The average life expectancy of a 65 year old man is 19.6 years while for a woman it's 20.4 years. The total sums paid out to pensioners will be much the same whether they defer or not.

It WAS worth doing if you reached SPA prior to April 2016 as deferral yielded 10.4% pa -the "breakeven" point is hence much earlier:)

Madeinireland

Hi - fair point but what about other savings you may make from being able to reduce your tax band for a while - such as withdrawing from drawdown at a reduced tax rate ��

jamesd

nigelbb wrote: »

I disagree. Take your pension just as soon as you are eligible. The benefit from deferring is small & nobody knows how long they will live so better a bird in the hand.

So, lets consider some cases:

1. If a person wants more guaranteed income.

For typical buying ages and many health and lifestyle situations state pension deferral pays about twice what an annuity would pay. Always compare but expect deferral to win easily.

2. If a person wants longevity insurance to provide core income if they live longer than anticipated.

There are no pure longevity insurance products in the UK market, those pay nothing until you've reached the specified age. In the UK your main options are annuity or state pension deferral and deferral is usually better value for money.

3. If you want a higher drawdown income.

Blanchett considered how you can vary your drawdown success rate depending on how your guaranteed income compares to your minimum spending requirement. The more is covered by guaranteed income, the lower the drawdown success rate can be, and lower success rates mean higher income from the drawdown portion because you're no longer having to cover those bad cases from the drawdown portion. The analysis includes your chance of not living long enough, your bird in the hand point.

4. If you prefer taking the likely winning side of bets to the likely losing side.

Male life expectancy is 21 years and female is 24 years at the start. Make the choice to bet on living less than 17 years and if you're average you're picking the likely losing side of the bet, with only a 1 in 4 chance of winning.

5. If you like the losing side of bets but have a spouse or other inheritance beneficiary.

Term life insurance is cheap for people in good health. Buy 5, 10 and 15 year policies so the cover payout decreases as the amount of higher income you've had increases. You may end up dead but your beneficiaries don't need to be on the losing end. This cost extends the break even time.

6. What you do with the money instead matters.

UK economist John Kay provides a tool that considers how long you should defer based on life expectancy and what you'd do with the money instead. It doesn't include the longevity insurance and drawdown success rate aspects so it'll still be on the low side.

There are factors like low life expectancy that can make deferring a bad idea but it's a remarkably useful tool.

skycatcher

jamesd wrote: »

Would those who understand the tax forms to use please check that my summary is right and let me know about any useful tips that I've missed?

The "print, fill in and post" version of the P53Z (scroll down) has a box where you can say which tax year it's for.

Maybe i'm missing something but I dont see where you can specify the tax year on that form...it has 19/20 everywhere on it.

jamesd

Sorry, it's the P53 version with that, not the P53Z.

Abbey1991

Hi, a friend wants to make a withdrawal but they have been sent a HL Flexible Drawdown application form.

Does this form work for either Drawdown and for UFPLS, or are there separate forms?

Thanks

Motherspride

Hypothetically could I transfer my 10% tax allowance in retirement to my parter & without taking any tax free cash could my parter theoretically withdraw £18333 tax free PA from various pension provisions
Ie 12500+10% =13750 +25%(not taking any TFLS ) =£18333
Thanks

nigelbb

jamesd wrote: »

So, lets consider some cases:

1. If a person wants more guaranteed income.

For typical buying ages and many health and lifestyle situations state pension deferral pays about twice what an annuity would pay. Always compare but expect deferral to win easily.

2. If a person wants longevity insurance to provide core income if they live longer than anticipated.

There are no pure longevity insurance products in the UK market, those pay nothing until you've reached the specified age. In the UK your main options are annuity or state pension deferral and deferral is usually better value for money.

3. If you want a higher drawdown income.

Blanchett considered how you can vary your drawdown success rate depending on how your guaranteed income compares to your minimum spending requirement. The more is covered by guaranteed income, the lower the drawdown success rate can be, and lower success rates mean higher income from the drawdown portion because you're no longer having to cover those bad cases from the drawdown portion. The analysis includes your chance of not living long enough, your bird in the hand point.

4. If you prefer taking the likely winning side of bets to the likely losing side.

Male life expectancy is 21 years and female is 24 years at the start. Make the choice to bet on living less than 17 years and if you're average you're picking the likely losing side of the bet, with only a 1 in 4 chance of winning.

5. If you like the losing side of bets but have a spouse or other inheritance beneficiary.

Term life insurance is cheap for people in good health. Buy 5, 10 and 15 year policies so the cover payout decreases as the amount of higher income you've had increases. You may end up dead but your beneficiaries don't need to be on the losing end. This cost extends the break even time.

6. What you do with the money instead matters.

UK economist John Kay provides a tool that considers how long you should defer based on life expectancy and what you'd do with the money instead. It doesn't include the longevity insurance and drawdown success rate aspects so it'll still be on the low side.

There are factors like low life expectancy that can make deferring a bad idea but it's a remarkably useful tool.

I said my example was simplistic but you have massively overcomplicated the decision mostly with stuff that is irrelevant to my situation (& I am guessing to others).

I don't have a pension pot or savings that I am going to drawdown in retirement. I won't be buying any annuities. There is no other money that I would be doing things with instead. I have a number of defined benefit pensions & I have a mortgage. For my own peace of mind I would rather draw my state pension as soon as possible & amongst other things pay off my mortgage earlier thus reducing my outgoings in retirement. I will hopefully live longer than the average but am prepared to forgo waiting seventeen years for a modest gain in pension for the certainty of money in hand.