Decision Time

jsinc

Audaxer wrote: »

I said the option proposed amounts to around £12k per annum each once they get their deferred SPs, rather than the OPs choice of a £6,600 annuity and SPs of £8.5k each, and because they will still have a significant amount of cash under jamesd's suggestion.

Yes I misread you.

choi

jamesd wrote: »

To start, that annuity is paying 2.64% of the capital amount spent. So, lets look at how to do better.

State pension deferral for you and spouse. I don't know your actual amounts so I'll assume 8500 a year each. For each year you defer claiming it's increased by 5.8%, pro-rated for less. The extra increases with CPI. Say you each deferred for 7 years and drew 17000 a year from the pension cash to replace the 8500 you're not taking. After the 7 years you'd have drawn out and spent 8500 * 7 * 2 = 119000. Your state pensions will each be higher by 8500 * 0.058 * 7 = 3451, so 6902.

So: instead of 6600 RPI and the money gone this gets you 6902 CPI and you have 131000 change. Same 50% spousal, though you can get more or less by adjusting deferral time



At this point you might grimace and realise why annuities around retirement age are thought of as bad value for money.

No need for anything other than cash while deferring. Strictly this is drawdown but done without investment risk.

My wife does not retire for another seven years

If I did as you say and deferred my state pension

In seven years time it would be £8500 Plus £3451.00
£11,951 per year at CPI
But inflation would have had seven years to reduce the spending power
Plus I would have had to live off my savings
£8500.00 Plus £6600.00 Plus increasing to match inflation

In meantime I would have to leave my pension pot invested
I might also die in seven years time and thats the state pension gone

Not quite as good as you infer

Or am I getting somesithing wrong

wjr4

Another view on the State Pension - take it and reinvest it back into a personal pension therefore you do not lose it. However, the reason to defer is for the % increase.

In relation to your other pension, why not do 50:50 drawdown & annuity? You do not have to do all or nothing.

nigelbb

It used to be a very good deal indeed to defer state pension as each year of deferment added 10.4% to the pension now that it's only 5.8% the case for deferment is less strong.

I'm not clear whether the OP has any income or is just drawing down cash from savings but if they are paying income tax already then one option is to take the state pension & pay it all into a SIPP to take advantage of the 25% tax free lump sum.

choi

nigelbb wrote: »

It used to be a very good deal indeed to defer state pension as each year of deferment added 10.4% to the pension now that it's only 5.8% the case for deferment is less strong.

I'm not clear whether the OP has any income or is just drawing down cash from savings but if they are paying income tax already then one option is to take the state pension & pay it all into a SIPP to take advantage of the 25% tax free lump sum.

Currently my income comes from State Pension
We pay our bills from the rent from a second property

One way or another I need to have £20,000.00 pa

My original plan

£8500.00 from state Pension
£6600.00 from annuity
Top up from savings to give £400.00 cash after tax

Audaxer

choi wrote: »

Currently my income comes from State Pension
We pay our bills from the rent from a second property

One way or another I need to have £20,000.00 pa

My original plan

£8500.00 from state Pension
£6600.00 from annuity
Top up from savings to give £400.00 cash after tax

Under the deferral suggestion, your pension in 7 years time would be £11,951, your wife's would be £8,500 plus whatever it has increased to by inflation in the 7 years until she retired. You would not have the annuity, but you would still have £131k cash plus 7 years interest.

jamesd

choi wrote: »

In seven years time it would be £8500 Plus £3451.00
£11,951 per year at CPI
But inflation would have had seven years to reduce the spending power

The normal triple lock increases happen while deferring. The 5.8% is of that higher amount and that 5.8% then gets CPI while the core continues to get triple lock.

choi wrote: »

Plus I would have had to live off my savings
£8500.00 Plus £6600.00 Plus increasing to match inflation

Yes, for simplicity I didn't write about inflation or triple lock increases while deferring.

choi wrote: »

In meantime I would have to leave my pension pot invested

It's entirely fine to have cash in a pension account and uninvested and I have a fair bit in my own at the moment. Money market funds are an almost cash alternative.

choi wrote: »

I might also die in seven years time and thats the state pension gone

If you do you'll be under 75 so your beneficiaries will inherit all but the amount spent as a tax free pot (100%, not 25%) to take whenever they like, however young they are (no age 55 requirement). This is not part of your estate and not subject to inheritance tax.

Your estate gets up to three months of back payments if you die while deferring. If you want to protect more than that, term life insurance is normally very cheap for those in good health.

choi wrote: »

Not quite as good as you infer ...Or am I getting somesithing wrong

You were, how about now?

jamesd

nigelbb wrote: »

It used to be a very good deal indeed to defer state pension as each year of deferment added 10.4% to the pension now that it's only 5.8% the case for deferment is less strong.

It's less good than it used to be but compare it to the annuity being considered: more income (CPI not RPI) and more than half of the money still not used. It's way better than the alternative.

nigelbb wrote: »

if they are paying income tax already then one option is to take the state pension & pay it all into a SIPP to take advantage of the 25% tax free lump sum.

Only 3600 gross a year allowed because no earnings but that should be done.