Unsure What Option to Take, Please Help

simonleblank

I am a 50 year old male with a salary of £40k. If I retire at age 59, I will receive a gross private pension of £20,172 pa, calculated at today's rate. It is index linked. I will only have 9 years in S2P and am not sure what this will pay out when I reach age 65. At age 65 I believe I will receive a first state pension of £4,524 pa. My question is "Will my state pension be reduced because of my private pension?"

EdInvestor

No, the state pension is not a means tested benefit. It does count as taxable income though.

omg_3

Thank you for the prompt response. I do have a couple of further questions,

What S2P can I expect?

Is the s2p means tested?

On my pension, do I pay my normal tax but no NI?

"21k taxable income range where age allowance reduction starts". Can you please explain what this means

penrhyn

Write to the Future Pension Centre and ask for a forecast application form (BR19) and a return envelope at:

Future Pension Centre
The Pension Service
Tyneview Park
Whitley Road
Newcastle upon Tyne
NE98 1BA

You can download the form from the pension service website, and S2P is contribution based.

dunstonh

penrhyn wrote: »

Write to the Future Pension Centre and ask for a forecast application form (BR19) and a return envelope at:

Future Pension Centre
The Pension Service
Tyneview Park
Whitley Road
Newcastle upon Tyne
NE98 1BA

You can download the form from the pension service website, and S2P is contribution based.

And then wait at least 18 months for it to arrive as that service is not available for the next 18 months.

EdInvestor

omg wrote: »

What S2P can I expect?
Is the s2p means tested?

You will need to get a forecast which will be available at the earliest from next May when the computer is back in action.S2P isn't mean-tested.As an example, a person who had been contracted in to SERPS/S2p from 1978 when it started and who was on a salary equiavlent to around 30k or more+ now,for most of his or her working life would probably end up doubling the basic state pension when S2P was added on.

On my pension, do I pay my normal tax but no NI?

Yes, but people over 65 receive a higher personal allowance, known as 'age allowance", which reduces their tax.Age allowance will go up to around 10k p.a. by around 2011.

"21k taxable income range where age allowance reduction starts". Can you please explain what this means

This age allowance starts getting withdrawn when your income gets beyond the level mentioned, so that if you get income of more than around 26k, you are back to the normal personal allowance.

jamesd

When the age allowance reduction starts you lose one Pound in allowance per two Pounds in income over the limit, effectively paying a 33% tax rate on income until all of the age allowance is gone and you're back to the normal personal allowance.

To avoid this effect you can arrange to reduce your taxable income.

Each person has their own allowance so contributing to a personal pension for a spouse instead of yourself would give a higher household income if they aren't already using their allowance.

Investing via stocks and shares ISAs as well as a pension could help because the ISA income will be untaxed. No tax relief on it when you pay it in but since you're basic rate now and will be in retirement this doesn't matter much: you lose a small benefit from the loss to the tax relief that is part of the 25% tax free lump sum but gain increased flexibility being able to use all of the ISA money whenever you like instead of having to take it as annual income.

If your private pension allows taking a 25% lump sum taking that and reducing the regular taxable pension helps. You can then invest the lump sum into ISA investments over time.

For higher rate tax payers, investment bonds can be useful to defer tax until they retire and are in basic rate again.

If your private pension has investments that you can control it's important to monitor those at least once a year ad change them as necessary so that they continue to perform well.

simonleblank

Thank's for your help so far.
The majority of my pension is Final Salary. After I take out 25% Lump Sum, it pays out £18,312 pa @ age 59. I could take it earlier with a 4% reduction per year early.

The balance of £1,854 pa (Pot of £45,338 x 4.09% annuity) will be made up from Company paying 10% of salary into my pot ALSO I pay about £3,000 in AVC's pa (To avoid paying 40% Tax) and having taken out 25% as Cash.

This year I have taken out my 1st Mini Cash ISA and I plan to use this up each year.

I do have about £6,000 pa spare cash.

What would your suggestions be please?

EdInvestor

You would be better to put cash into tax free index linked NS@I certificates, especially as you pay high rate tax (excellent rate), and then max out your stocks and shares ISA @7.2k a year from next April.

Open the ISA with a discount broker which rebates charges and stock it with a mix of quality funds.https://www.h-l.co.uk is an example.

simonleblank

Thank's once again for your prompt response. I have only very recently gained extra disposable income. I am very unsure over the stock market at present, I feel that there could be a big fall????????? and would hate to see my investments drop

jamesd

simonleblank, there will be a big fall. About 40-45% drop is usual for big bear markets here. The problem is knowing when.

Investing regularly over time is one way to reduce the effect, since you buy when the market is down a well as when it is up so gaining benefit from the lower prices.

The dips are a problem if you have to sell during one of them. If you have 5 years to go or won't be forced to sell at a bad time they matter much less. For those with deadlines it's necessary to start moving money to investments that move up and down less as they approach their deadline. Thing like corporate bonds or commercial property funds that own buildings rather than shares of construction companies.