Deferring state pension

swindiff

I have a colleague at work who is 67 and planning on working until at least 70. He has thus far been deferring his state pension and I was wondering if this is actually the best thing for him. He is still working because he wants to not because he has to. Salary would be about £60k member of the USS DB pension scheme but not paying into the DC scheme that runs along side it. He is not married but has 2 grown children. My thought was he would be better off taking his state pension and paying that amount from his salary into the USS DC scheme. This way if he were to pop his cloggs unexpectedly rather than lose his state pension it would be in a pension protected from any inheritance tax for his children. Am I missing anything here? I am assuming because the state pension is defined benefit it would not trigger the MPAA when taken, although I have not been able to find anything which categorically states this. Would this be a better strategy than just continuing to defer state pension until he finally decides he want to retire?

Marcon

Might be better to let him take his own decisions? I'm sure you are well intended, but if things don't turn out as he anticipates, guess who gets the blame.

The state pension is nothing to do with the MPAA - that is only triggered if someone 'flexibly' accesses benefits from a private defined contribution scheme.

swindiff

Oh I am sure he will make his own decision, but it's useful to know all the facts to enable you to make an informed decision.
That's what I thought about the MPAA

Dox

Any reason he can't do his own research, always assuming he's remotely concerned about what is a relatively small amount of money? You seem to be advocating a very complicated solution to what sounds like a non-problem.

swindiff

Nope, no reason. I am just curious. It would seem to me that deferring state pension when maybe one has no real intention of retiring is not necessarily the most prudent strategy. You could end up with nothing at all from the state pension which you have paid into for most of your working life. I think I am right in thinking that the amount you get from deferring is nowhere near as generous as it used to be.

LHW99

Depends when his birthday is - if he was 65 in march 2016 he get the old 10%+

badmemory

It is always possible that he is rubbing his hands in glee at the possibility of retiring with his state pension uplifted by 10.4% pa (hope he isn't considering lump sum) & his employment pension & getting the same for not working as he was for working. It is like Xmas coming every payday! Actually thanks to the triple lock my pension was bigger - it doesn't get much better than that.

DairyQueen

Depending on his circumstances, I understand the tax advantage that you suggest. If he was to take his SP now it would be taxed at 40%. But, if he rerouted into a pension then he would receive all of the tax back. Assuming that he would be a 20% taxpayer in retirement then this could be beneficial.

However, it depends on whether the additional SP (assumed 5.9% p.a. post-2016 deferred rate) would be of greater benefit. This depends on his life expectancy and how much income he will receive from his DB.

It's horses for courses but I commend you for considering the option.

bluenose1

It is amazing how little most people know about pensions. I learnt more on this forum than 30 years of being in various pension schemes. Really think more information should be given to staff on benefits of pensions.

Most of my colleagues didn't know what salary Sacrifice is etc and are amazed when you tell them. I have been asked by at least a dozen staff for further information and have a standard email I now send explaining it. Think we should all be on commission😀

swindiff

I agree and where I work they are mostly very intelligent well educated people who for some reason take no interest in anything related to pensions. I was chatting to another colleague who had not taken the "match" in the USS. There is a DC scheme which runs along side the DB scheme and if you pay 1% into it your employer matches that 1% so free money into your pension (ending soon unfortinately). He had also been paying into an ISA rather than using that money to go into the DC scheme and immediately getting 42% tax and NI relief. The ISA actually lost money last year. He has since used the money he was paying into the ISA to go into his DC pension which he will be able to get out all tax free as it is combined with the DB pension when working out the 25% tax free lump sum.

bluenose1

Typical USS are ending the 1% match after I persuaded all of our team to contribute.
I am now contributing up to the max to keep me within NMW so will have to reduce my additional contributions in line with the USS DB Pension increases in April and October 19 and again in April 20.

If I am not made redundant which will obviously affect my plans, my countdown to retirement is 29 paydays at age 55.