Being stupid or doing the right thing?

xylophone

And does your state pension statement of benefits show a contracted out deduction?

liketoknow

xylophone wrote: »

And does your state pension statement of benefits show a contracted out deduction?

I don't know as I don't know where to look, I've looked on the .Gov website and put in 'State pension statement of benefits' and the page it comes up with says you can't use it if you are already claiming it or if you have deferred it.

liketoknow

jamesd wrote: »

Sigh. The works pension could totally change the best thing to do. That may mean that your income is too high to qualify for Pension Credit/Universal Credit. If it is too high then the best thing to do with the state pension would be to pay for three missing years and defer claiming it, using your private £24,000 pension to help fund this.

The extra state pension from deferring increases with inflation every year if you don't choose the lump sum option. The lump sum option is usually a bad deal.

You do not need to take a regular income from a private pension or buy an annuity. You can take 25% as a tax free lump sum and leave the rest in "flexible drawdown" which lets you take out any amount as taxable money whenever you like. No charge to do this at places like Hargreaves Lansdown and you can just transfer if the place where it is now doesn't offer flexible drawdown.

Normal pension age from the works pension was probably 60 but it could be 65. Usually there is no increase for taking it later than the normal pension age but sometimes there is.

Fortunately you can still defer the state pension once even after claiming it. So once you get the answer from the works pension you can start to defer again if that looks like a good move, which it probably is.

You can pay to make up missed state pension years at least as far back as six years using normal rules but if you reached State Pension age between 6 April 2010 and 5 April 2015 you can go back as far as 1975 to pay for incomplete years. I think that one doesn't apply to you but there's a other one for a man born after 5 April 1951 or a woman born after 5 April 1953 that lets you pay for gaps between April 2006 and April 2016. I think you probably can find three incomplete years within that time range and just pay for the cheapest three to get you to thirty years total.

I have to say that several of the posts, went straight over the top of my head, all this talk of tax relief, drawdowns, etc was like a foreign language to me, but after having a read of several pages of the thread xylophone pointed me in the direction of - http://forums.moneysavingexpert.com/showthread.php?t=5580163 - I think I am getting the gist of it now.

I have just found the paperwork that was sent by the old management company (Aon Hewitt) about what would happen to the pension if I hadn't claimed it by the time I die. I had asked them for a forecast but they weren't very helpful, I found out a couple of weeks later that they were being replaced by another company (Hymans), so I suppose they were not really that interested in answering questions. I can never find out things over the phone with them as I don't know my membership number, its very hard going trying to get any info from them which is why perhaps they are being replaced. Apparently the new company are going to have a website with lots more information which can be accessed easily, this will not start until April, so hopefully, I will be able to find out lots there.

From what I can remember of information I got a year or two ago, I can get the 25% tax free as you have all said, but then I had to start having regular payments or a lump sum, I don't think I could just leave the other 75% in. I might be wrong though as I didn't really take a lot of interest as I was leaving it there anyway and only really wanted to know how much was in.
Anyway, from reading it, it looks as though it is a DB pension, as it says that 'if I died after the age of £75, any balance of pension instalments that are paid as a 'Defined Balance Lump sum death benefit would be subject to a tax charge normally at the recipients marginal rate of income tax'.

It then goes on to say that 'The pension guarantee period runs for 5 years' - so do I take it that the pension stops anyway after 5 years if I am claiming it?

xylophone - when you said it wasn't gaining any interest, did you mean it wasn't gaining anything now by leaving it in?

From jamesd above - I did not realise that I could change my mind about the State Pension and put it back to being deferred, I was told that the lump sum that I have accumulated stopped gaining interest when I started receiving the pension (26th March). If it went back to being deferred, would it start getting interest again? I really needed to start getting extra money from somewhere, as I have been poorly and run up some bills and claiming the pension seemed like the quickest way of doing it, hence starting to claim it. At least claiming it for now is giving me a bit of breathing space to get sorted.

Until I can get some figures about the works pension, I don't know if my income would be too high to get PC/UC or not, I don't really want to claim PC/UC if I don't have to. I apparently would qualify for SC as I am on the old system of pension, my SP qualifying date was Jan 6th 2016. I don't know how to work out what I would get with that.

You said that my best option would be to pay for three missing years by using the private works pension to fund it, but surely if I draw out the works pension, I will be taxed on 75% of it? That would be quite a sum, I realise that not all of the 75% would be taxed, just what was over the personal allowance less my income.

I also understand what you are saying about transferring it to HL if the scheme managers it is with now won't let me do flexible drawdown. If I transferred it, rather than taking it out, would that mean I would still be liable to tax on the above extra over my PA, or just on the amounts I withdrew when I withdrew them, ie, if I kept my withdrawals and earned income below my PA each year, would I be tax free? I know I probably wouldn't if I was drawing my SP and still working at the time, but thinking of perhaps if/when I gave up work, would it be possible to take out of it as drawdown and not pay tax?

'Normal pension age from the works pension was probably 60 but it could be 65. Usually there is no increase for taking it later than the normal pension age but sometimes there is.'
I don't know at this stage what the normal pension age for the scheme is, I am waiting to ask the new managers when they take over on 1st April, but what do you mean by the second sentence?

In your last paragraph, neither apply to me as qualified for SP Jan 2016 and I am female and was born in Feb 1953.


From what you - jamesd and xylophone have said, if I understand it correctly, I could pay £2880 into a pension fund, get tax relief of £720 each year until I was 75 and each year draw out around £3660, (leaving a bit in the first year so as not to close the SIPP). I would need to save £2880 of that somewhere so as to be able to fund it the next year. Would this need to be in a different SIPP to the one I had transferred the rest of the private pension pot into to get the flexible drawdown? Can you have more than one SIPP and would there be any advantage of having more than one?

Another question. Do you have to pay tax on the money you pay into a pension fund? If you don't, is that why you say that I should pay up to 80% of my s/e earnings into a pension fund then claim 25% of that as a tax free sum?
Sorry for all the questions, still trying my best to get my head around it.

Thank you to all of you for your help.

xylophone

I made several phone calls and decided to take my state pension which started yesterday.
I was quite amazed at how soon I was able to get it,

Re COD

Have you not been sent a letter which shows how your state pension is calculated?

See post 21 here http://forums.moneysavingexpert.com/showthread.php?t=4532605&page=2

Have you received something like this showing Basic Pension and Additional Pension?

jamesd

liketoknow wrote: »

From what I can remember of information I got a year or two ago, I can get the 25% tax free as you have all said, but then I had to start having regular payments or a lump sum, I don't think I could just leave the other 75% in. I might be wrong though as I didn't really take a lot of interest as I was leaving it there anyway and only really wanted to know how much was in.

Anyway, from reading it, it looks as though it is a DB pension, as it says that 'if I died after the age of £75, any balance of pension instalments that are paid as a 'Defined Balance Lump sum death benefit would be subject to a tax charge normally at the recipients marginal rate of income tax'.

It then goes on to say that 'The pension guarantee period runs for 5 years' - so do I take it that the pension stops anyway after 5 years if I am claiming it?

That's the description of a defined contribution pension, just like your personal pension.

A five year guarantee is something that's normally used for annuities. It means that even if you were to die within five years of buying the annuity it would continue to pay out for five years from the time you bought it.

There's no requirement to buy an annuity now. That was just the thing most people were expected to do a few years ago. Today you can choose and deferring your state pension would probably get you more income than buying an annuity.

Given how old this one is, it might have something called a "guaranteed annuity rate" (GAR). That's a higher income payout rate than you'd normally get on the open market today. It might be say 8% vs say 5% on the open market today. But at those levels the 10.4% plus inflation linking you can get from deferring your state pension would be the better buy. Don't know what the rate would be, 8%, meaning 8% of the amount that you spend to buy it as income each year, is just the likely sort of range.

It also might have something called "guaranteed minimum pension" (GMP). That can be more valuable than a GAR because it has to be paid, if you ask for it, however little the pot of money in the pension is worth. Often the amount in it would be far too little to buy the level of income that is guaranteed.

If it does have a GAR or a GMP there might be some hoops to jump through before transferring. That would apply if the value of the guaranteed income is more than £30,000 calculated according to some special transfer value calculation rules. The pot value isn't used, it's that transfer value instead, which is normally higher. But it's also possible that we'd tell you that transferring isn't the best idea and that you should take the GAR or GMP income instead. Can't say yet because the answer depends on the numbers.

So some questions to ask are: is it definited benefit or defined contribution? If it's definited contribution does it have a guaranteed annuity rate or guaranteed minimum pension and what are the values and other terms of those? Is the value of the guaranteed benefits more than £30,000?

xylophone

You live alone and have health problems.

You inherited your house mortgage free but have no savings and have been living on about £152 a week.

It appears that despite this low income you are only getting the single person's CT reduction - are you sure that you are not entitled to more?

What has happened to your application for PIP?

With regard to the pension currently administered by Aon, (but soon to be administered by Hymans Robertson) it is very important that you establish what type of pension this is and your entitlement.

It seems likely that you have a deferred DB pension. If so, you have almost certainly reached (or at the limit are about to reach) Scheme Normal Retirement Age.

If Scheme NRA was 60, and it is one of the schemes that did not pay Late Retirement Increases, then you could have lost out by not claiming your pension when it fell due.

jamesd

Yes, if you went back to deferring it'd start to gain interest again. But we'd probably only tell you to do that if the higher income looks like a good deal, very unlikely that we'd tell you to defer and then take the lump sum. It'd increase with the higher income choice as well.

Yes, you'd qualify for SC if your income was low enough, though we're probably going to end up getting your income high enough that SC and means tested benefits don't matter because your income is too high.

Like your private pension you'd have the option to take a 25% tax free lump sum from the works pension and whatever you get from the rest will be taxable whenever you take it. But maybe no tax to pay if it's within your personal allowance.

We always try to plan things to be within the personal allowance if we can...:) For the moment we'll just plan on taking money out of your private pension until we know more about the works one.

You don't have to take out the whole taxable 75% at once and we won't tell you to do that. Most likely is that we'd tell you to take out enough of the taxable part to use any of your personal allowance that isn't being used. We'll probably try to do that gradually each tax year until there's nothing left, then tell you to start your state pension. Not sure yet, depends on the works pension, but that's usually what ends up being better. Though no problem to just keep some as savings, of course.

So right, you don't pay income tax on the taxable 75% immediately when you take the tax free 25%, just on the bits you take out, whenever you take them out. And only if your income is above your personal allowance.

Yes, we'd definitely to take it out free of tax up to your personal allowance once you stop working and before you start to claim your state pension again.

jamesd

Notice how xylophone thinks it's defined benefit and I think it's defined contribution? That's probably partly due to the "defined balance lump sum death benefit" which sounds a bit more like defined benefit. Mostly it means that we really need the real answer not to try to work it out. We'll just do a double take once we know the real answer.

liketoknow

xylophone wrote: »

Re COD

Have you not been sent a letter which shows how your state pension is calculated?

See post 21 here http://forums.moneysavingexpert.com/showthread.php?t=4532605&page=2

Have you received something like this showing Basic Pension and Additional Pension?

I have not been sent a letter yet, I only asked for the SP to be paid a week ago, perhaps it will come later.

liketoknow

Thank you very much for all your help. I know I am being very vague and realise it is hard for you to tell me what the best way forward is without my being clearer but until I can get more information from the scheme managers, I cannot tell you much more.

It is very helpful for you to tell me what questions to ask as I am going to be emailing the new management this week to try and get more information, so any other questions that you can think of that you need to know would be appreciated, I can then ask them all at once without having to go back and ask them again.


jamesd - can I just make it clear, and I am sure you already know, I only have SP and the works pension to play with, I have no other pensions at this present time. I think where you were talking of a private pension and works pension above, that you were perhaps talking of a private pension I have yet to take out, is that correct or have I misread it?

I again will say that I am very grateful that you are trying to help me get the most out of these pensions and help me give as little as I can to the tax man lol. I don't have much 'actual' money coming in each month and have built up some debts which I want to try and get cleared before I retire. I am happy to keep on working, I have regular offers of work from one company and the work I do is on a self employed basis and I can choose to accept or decline, I tend not to decline much as I don't want the offers to stop and I enjoy what I do, hence continuing after I could retire.