Uncle reaching 65 30 Jan 2018 - need advice please

kidmugsy

A reasonable target would be to be able to use up all of his Personal Allowance against income tax when he finally stops working. Suppose that that means he'll want to make roughly a taxable £3k p.a. from his non-state pensions. Under current rules he could get £720 p.a. of that from cycling money into and out of personal pensions of some sort e.g. a SIPP. Thus his target is reduced to about £2.3k p.a. If the investment world smiles on him and he can drawdown indefinitely at 4% p.a. that means he'll want to have the taxable part of his pension capital at around £60k at age 70, with a tax-free 25% over to act as his capital reserve for the rest of his life. So an £80k target would be reasonable.

If his B&CE scheme is indeed a 100% tax free lump sum scheme, and if he withdraws it all to do up his flat, then he's left with about £34k in pensions, and only five years to get it up to £80k. On the other hand he will have the taxed State Pension with which to make extra contributions.

It might be more fly, though, to follow a suggestion above by cloud_dog and defer his state pension until he's 70 because that way he'll be deferring that pension from years when he would be taxed on that income to years after age 70 when he won't be taxed on the bigger pension he'll get then. It will also reduce the target for increasing his private/occupational pensions to something more easily achieved.

Under the new deferral rules I think the case for deferring is often rather weak - the great exception is when the person can avoid income tax by deferring. Then it's like free money.

badmemory

If he doesn't defer his state pension he will pay tax on all of it. Some questions, there always seem to be more questions than answers with these things. Is he fit and well? The answer would seem to be yes as he intends working for another 5 years. Can he live on £175 per week plus the small maybe as much as £35 per week from the other pensions? If he has no savings now then I don't believe he can. If he took his state pension would he save all the extra £140 per week? And would that £140 per week fund the shortfall from 5 years deferral in todays terms to £230 per week for the rest of his life?

runninglea

Just to say - it is a B&Ce holiday scheme so can withdraw the whole amount tax free

xylophone

Just to say - it is a B&Ce holiday scheme so can withdraw the whole amount tax free

Then he might wish to consider proceeding as in my post above?

https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief