State pension deferment

taralou

I am getting quite confused whether to defer my state pension or not and need some help please.
I reached retirement age last month however, I am still working part time and intend to carry on as long as I am able. My question is should I take my pension or not. I have read two different views on this forum, one saying not to take it as you are liable for tax? Is that right? Then Martin :money:is saying that if you defer the state pension for a year (or more) for the extra you receive after deferment would take approximately 17 years to accrue to the same as if I took it now??

This is his statement:
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[FONT=&quot]'If you are still working at state pension age, or have other retirement income such as a company pension, deferring the state pension might seem a good idea.However, you need to balance the prospect of a bigger state pension in the future against giving up £1,000s of pension income in the short term. When you eventually start drawing your deferred (larger) state pension, it will be years before you make up for the foregone payouts.The 'break even' point has been calculated as 17 years from when you start drawing your deferred state pension. The longer you live, the more you stand to benefit from deferring. Equally, unless you live to a good age in retirement, deferring will cost you overall.' [/FONT]

Hope this makes sense. All I really want to know is if I take my pension and carry on working what are the implications?
Many thanks

xylophone

The standard Personal Allowance is £12,500 for 2019-20.

State Pension, although paid gross, is taxable income.

If your salary plus state pension is higher than your personal allowance, the tax code on your salary should be adjusted so that you pay the correct amount of tax.

Re deferment

https://www.which.co.uk/money/pensions-and-retirement/state-pension/deferring-your-state-pension-ahr9w8p0f87w

Dazed_and_confused

I have read two different views on this forum, one saying not to take it as you are liable for tax? Is that right?

Who knows? Certainly not anyone reading your post.

You haven't told us how much your taxable salary is. Or how much State Pension you will be entitled to. Or what income you will have when you stop working.

taralou

Many thanks for that. I think I understand and have had a look at the link you posted.
Much appreciated.
I think I will take it now and pay the extra income tax as I think it will still benefit me to take it now rather than leave it because of the 17 years.

taralou

Dazed and confused I really don't think there is a need to rude. I am only asking a question which xylophone has answered for me. There is no need for you to know my salary or pension. Knowing that would make no difference to the answer.

Dazed_and_confused

I think it would make a difference. The payback times would be different if you were being paid the deferred amount and paying 20% tax on it.

But you might be getting paid the deferred amount and paying no tax on it.

xylophone

I reached retirement age last month however, I am still working part time and intend to carry on as long as I am able.

You may care to check the NI situation.

https://www.gov.uk/tax-national-insurance-after-state-pension-age

You do not pay National Insurance after you reach State Pension age - unless you’re self-employed and paying Class 4 contributions.

jsinc

Depends how you assess State Pension (SP) deferral.

If you think in terms of optimising SP years then replicating the methodology here for an average 65.5 year old English woman with latest National Life data: https://rss.onlinelibrary.wiley.com/doi/full/10.1111/j.1740-9713.2015.00814.x - optimal was 2 years deferral for average life expectancy, and 3 years for assumed life expectancy of 2 or 4 years above average. But there's not actually much difference in total effective years between deferring vs. not - approx 2 months / 5 months / 8 months for average / +2 / +4 life expectancy. So perhaps more important to assess the value to you of a higher amount later vs. not. (Disclaimer - don't rely on my calculations vs. doing it yourself. The ONS Life Tables still use 2015-17 data which aren't necessarily the same as today's life expectancy forecasts, but think they're ok for sake of deferral comparison)

There's a different calculator here: https://www.johnkay.com/pension/ that accounts more for the idea of state pension vs. other monies. i.e. choice between spending down on other savings or investments versus taking the SP.

Other things to consider are:
- Breakeven may be 17 years but your life expectancy is 88 (23 years), and that’s just the average. You have 1 in 4 chance of reaching 95: https://www.ons.gov.uk/peoplepopulationandcommunity/healthandsocialcare/healthandlifeexpectancies/articles/whatismylifeexpectancyandhowmightitchange/2017-12-01
- Deferral uplift uses simple interest e.g. 1 + 5.8% * 2, not compounding (1 + 5.8%)^2
- SP has the triple-lock, but any extra from deferral goes up by CPI
- As xylophone says, you probably won't pay NI after you reach SP age. This may impact your income and any comparison.

Then you could think about tax. Is it worthwhile receiving SP earlier if it gets taxed? On the other hand perhaps you could still do with the money and/or it enables you to contribute to a personal pension for tax relief if not yet drawing on one.

Personal opinion - It's ridiculously difficult to assess meaningfully, so take it when you need it. If that means deferral and you don't live long enough to accrue a net benefit you won't mind because you'll be dead.

Alice_Holt

taralou wrote: »

Dazed and confused I really don't think there is a need to rude. There is no need for you to know my salary or pension. Knowing that would make no difference to the answer.

You must have a very low sensitivity threshold if you think D and c's post was "rude".

There is every need to know your salary or pension, as taking the benefit (or not) of deferring your SP will depends in part the taxation impact. If taking the pension moves you into a higher tax band (either 20% or 40%), then the argument for deferring is stronger. (This is one of a number of factors as detailed in the excellent post of jsinc).

You can't expect forumites to magic up the correct answer for your particular circumstances when you ask a general question, and then refuse to give specific details to help us guide your thoughts relating to quite a complex issue.

If you really can't understand why "Knowing that would make [a] difference to the answer", then I suggest you err on the safe side and don't defer. Take the cash now.