Is it worth claiming state pension while working

Lovel65

I turned 65 in August and decided to carry on working in my current job. I am therefore deferring collecting my state pension (probably for a year) and expect a slightly better weekly pay out when I do collect. My conundrum is, do I take my state pension while continuing to work ? This would mean I'll pay tax on it at 40%, but I'll get approx. £414 per month after tax for next 12 months, totalling £4,968 pa. which I wouldn't get if I left it.
My thinking is I can do a lot with this extra money rather than wait and the extra I get by deferring is only 5.8% approx. £39 per month more !

LHW99

But that £39 per month is for the rest of your life, and increases with inflation. At age 65 in normal health you have a reasonable chance of living to your mid-eighties, probably longer.

Aretnap

At current annuity rates, an extra income of £39/month, guaranteed for the rest of your life, with inflation linking, would cost you somewhere in the region of £15,000. Deferring your pension really is a fantastically good deal - all the more so as you're a higher rate taxpayer which reduces the effective price you're paying for it.

Unless you have a desperate need for the money right now, or you're in poor health and think your life expectancy is well below average, deferring is a bit of a no-brainer to my eyes.

luvchocolate

Thats what I did deferred for 2 years while working, I was lucky as it was the old rules, but still worth doing in my opinion.

bostonerimus

An optimist will defer the state pension while a pessimist will take it as soon as possible.

kidmugsy

The 40% tax is the clincher, assuming you will pay only 20% once you start the pension. Just think of it as investing £5k in an unusually cheap index-linked annuity. Bargain.

If you really need £5k borrow it. Borrowing hasn't been cheaper in 5000 years apparently.

Alternatively, if you're so rich that £40 per month merits 'only' then why are you slumming for free recommendations on the internet?

Lovel65

Thanks for all the advice, was really seeing if I'd missed something. Lots of logical reasoning
Pessimistic I guess
Much appreciated

HappyHarry

Deferring to get a better rate is OK, but that does mean that you go for a couple of years without getting any payment.

You would need to work out when the crossover point (i.e. how old you are) when the total you get from deferring is more than the total you get without deferring.

It was easier pre-April 2016 as you could take the deferred amount as a lump sum.

Another option would be to take the state pension, and contribute that to a personal pension whilst working, from which you could claim 40% tax relief.

Linton

Another advantage of deferring is that of longevity insurance. If you have significant non-indexed income it may make sense to defer the State Pension well beyond the simple average crossover point so that should you live well beyond the average life expectancy you wont be impoverished by inflation.

brewerdave

I've deferred mine for a couple of years already .......and I'd be nowhere near a 40% tax payer (I wish!!):rotfl:
Why give more back to the Govt ??

kidmugsy

brewerdave wrote: »

I've deferred mine for a couple of years already .......and I'd be nowhere near a 40% tax payer (I wish!!)

If you've done it for a couple of years then it is presumably getting the old-style 10.4% p.a. boost. The new-style gets only 5.8% p.a. - attractive if you thereby avoid 40% tax, much less so if you don't.

Update: it depends partly on the rest of your assets. If you already have lots of secure, inflation-linked income, the extra from deferring at 5.4% might not be attractive. But if all you have is money-purchase pensions and ISAs, the guaranteed extra state pension might be very attractive (assuming you're capable of understanding the attractions of longevity insurance).