Suspending payment of state retirement pension

ben999

Friend of mine retired in 2008 and deferred her state pension. In July 1st of this year she started to receive her state pension and lump sum payment for the years of deferral.

If it is at all possible she would now like to suspend her state pension payments for a few months so that her total income (she has a part time job) will keep her below the threshold of her personal allowance which is £12,500 for this year.

Is this possible?

Grateful for any advice.

molerat

You can only suspend the state pension once. As long as she deferred her pension by not applying for it then she can stop taking it now. If she applied for it initially and then stopped taking it then she cannot suspend it again.

[Deleted User]

Yes. https://www.thisismoney.co.uk/money/pensions/article-6515783/Can-stop-state-pension-payments-started.html

badmemory

As she reached SPA before 2016 I was under the impression that you could defer twice. But I must say taking it as a lump sum would not have been (& indeed wasn't) my choice.


I don't agree with what that article says.


I think if she does defer again she can't do the lump sum again, but must take the increase in the pension. Which at 10.4% per year defered (or 0.2% per week) is a very good deal. If she had done that the first time she would have more than doubled her state pension.

ben999

Thanks for replies.

Her only concern, at the moment, is to reduce her income for this year by suspending her state pension. When she does re-claim her state pension after a few months she would be more than happy to get an increased weekly amount.

It is very difficult to understand the rules, for a lay-person. I have read of numerous cases where someone has claimed their pension and then after a length of time has stopped claiming and deferred their pension. This is clearly allowed. But I have not come across a case where someone:

1. has deferred their pension from the start (by not claiming) and then has received a lump sum.

2. Having started to then claim their pension they then ask for it to be suspended.

Just to add once again, that this person retired in 2008 and comes under the "old rules".

Many thanks for your help.

Malthusian

The other option to stay under the personal allowance is to make pension contributions. She can make tax-relieved pension contributions up to her earned income (i.e. the total she receives from the part-time job) or £3,600 gross / £2,880 net if that's higher. The Annual Allowance / Money Purchase Annual Allowance also applies.

If she reached State Pension Age in 2008 she is presumably still under age 75.

For people who claimed their State Pension before April 2016, the terms of deferral are generous, so she should certainly look at that option first. Like you I'm not clear on whether you can still suspend the State Pension if you deferred drawing it originally.

[STRIKE]She's already almost 7 months into the tax year so will suspending the State Pension now be enough to keep her under?[/STRIKE] I missed that she started drawing it in July so she's only had 3-4 months' worth of payments. However she's also taken 11 years' worth of deferral as a lump sum, which is taxable at the highest rate of income she pays in that tax year.

So in other words, if her State Pension + part time income + any other income is under the 20% threshold, she pays no tax on the lump sum, but if she's over, she pays 20% tax on it.

This could result in a big hit of unnecessary tax if her other income creeps above the threshold. How much was the lump sum and how much is her monthly State Pension and part-time income?

ben999

Malthusian wrote: »

The other option to stay under the personal allowance is to make pension contributions. She can make tax-relieved pension contributions up to her earned income (i.e. the total she receives from the part-time job) or £3,600 gross / £2,880 net if that's higher. The Annual Allowance / Money Purchase Annual Allowance also applies.

If she reached State Pension Age in 2008 she is presumably still under age 75.

/QUOTE]

Many thanks for comprehensive reply. How would she go about making pension contributions? That would be sufficient to reduce her income.

She is aged 71. Gets about £750 a month from part time job and £90 per week from her Cat B pension.

Malthusian

12 months of £750 a month plus 10 months of £360 a month (1st Jul-Apr inclusive) is 9000 + 3600 = £12,600, so she could be slightly over her personal allowance. (These are very rough figures and almost certainly won't equal her actual total income.)

That £100 of income over the threshold could see her pay 20% tax on her whole deferral lump sum, resulting in an effective tax rate of several thousand per cent.

(This is because, uniquely, a state pension deferral lump sum is taxed at the highest rate applying to your other income in the tax year - ignoring the special rates for savings income and dividends. So if your total other income is £12,400, below the 0% threshold, you pay 0% tax on the whole lump sum, not 0% on £100 and 20% on the rest.)

If she has no existing defined contribution pensions, I would be looking at a simple D2C provider that allows "small pot" withdrawals as we are talking about a small one-off amount.

But I would ring the State Pension helpline and find out whether she can suspend the State Pension first.

Ganga

If your state pension was due to be payed before 2016 you can defer the state pension twice and take two lump sums but after the second payment of the lump sum you must start drawing the pension

Dazed_and_confused

The problem with making a relief at source pension contribution is that they do not reduce your taxable income.

There are various methods of contributing to a pension and the op's friend would need to find an alternative method if they wanted it to reduce their taxable income.

The most common is probably a "net pay" contribution to her employers scheme as this would reduce their taxable income, for example

Annual salary say £6,000 and a net pay pension contribution of 10% would result in taxable income of £5,400 (the amount shown on their P60).

If they had annual salary of £6,000 and contributed £600 to a relief at source pension they would get £150 basic rate tax relief added to their pension fund but their taxable income would still be £6,000. Not £5,400.

ben999

Dazed_and_confused wrote: »

The problem with making a relief at source pension contribution is that they do not reduce your taxable income.

There are various methods of contributing to a pension and the op's friend would need to find an alternative method if they wanted it to reduce their taxable income.

The most common is probably a "net pay" contribution to her employers scheme as this would reduce their taxable income, for example

Annual salary say £6,000 and a net pay pension contribution of 10% would result in taxable income of £5,400 (the amount shown on their P60).

If they had annual salary of £6,000 and contributed £600 to a relief at source pension they would get £150 basic rate tax relief added to their pension fund but their taxable income would still be £6,000. Not £5,400.

Thanks for that info. I was beginning to suspect that the relief at source would not bring down her income, as needed.

Her employers pension scheme is not an avenue she can go down and so she would be left with finding "an alternative method" of contributing to a pension in order to reduce her taxable income.

Would be very grateful if you could suggest any alternative method or other avenues to explore.

Thanks again.