Government pension Query

Linton

Albermarle said:

Maybe another way to look at it is that to get £100Net the OP as a HRT would have to earn £166.66.
If they put this £100 in their pension the provider will add £25 and by reclaiming the HRT they will get another £25.
So they will have earned £166.66 and ended up with £150 , a reduction of 10%.

I must admit I have always been confused why you do not recover all the tax paid .

You do recover all the tax paid.  Your maths is wrong.  I can explain the error...,.
You say that HMRC provide £25 to the pension and £25 to you.  £25 in your pocket is actually worth £25/60%=£41.66 of pretax money.  So at the end you have paid out £166.66 of pretax money and received £100+£25+£41.666=£166.66 worth of assets. You were charging yourself 40% tax on your HRT tax refund! 

Always work in gross terms and then calculate the tax!

Albermarle

Linton said:

Albermarle said:

Maybe another way to look at it is that to get £100Net the OP as a HRT would have to earn £166.66.
If they put this £100 in their pension the provider will add £25 and by reclaiming the HRT they will get another £25.
So they will have earned £166.66 and ended up with £150 , a reduction of 10%.

I must admit I have always been confused why you do not recover all the tax paid .

You do recover all the tax paid.  Your maths is wrong.  I can explain the error...,.
You say that HMRC provide £25 to the pension and £25 to you.  £25 in your pocket is actually worth £25/60%=£41.66 of pretax money.  So at the end you have paid out £166.66 of pretax money and received £100+£25+£41.666=£166.66 worth of assets. 

Always work in gross terms and then calculate the tax!

I have seen that explanation before but I could not remember the details . Now it makes sense. Thanks !

eric4395

Further to my original query, I have googled about transferring my gov state pension to another private pension and the answers coming back that you are not allowed to transfer your gov pension to any other pension scheme. So I'm even more confused now?So as I am still working and in the 40% tax bracket if I claim it and dont defer then I will be paying 40 % tax on it. 

Dazed_and_C0nfused

You seem to be thinking of the State Pension as though it was an occupational pension.

It isn't.  It is basically a non means tested benefit administered and paid by DWP.  

There is no pot of money and no possibility of "transferring" it anywhere else.

A common reason for deferring State Pension is to avoid paying 40% tax whilst earning 5.8%(?) increase in future payments.  The increased deferred pension is then started when you become a 20% taxpayer.  But that benefit is negated if you will always be a 40% taxpayer.

xylophone

Further to my original query, I have googled about transferring my gov state pension to another private pension 

Your state pension is a state benefit and cannot be transferred to a private pension scheme.

You can defer it which might suit you if you  know that you are unlikely to be a higher rate tax payer when you cease employment.

https://www.thisismoney.co.uk/money/pensions/article-4565554/If-delay-state-pension-die-heirs-lose-out.html

Re NI after SPA

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

You might take the SP and regard it  as replacement of  part of your salary enabling you to increase contributions to your occupational scheme from your salary?

Or you might open a personal pension and contribute to that?

If you contribute to a scheme offering "relief at source" on pension contributions you would need to reclaim any higher rate relief due from HMRC.

https://www.which.co.uk/money/pensions-and-retirement/personal-pensions/contributing-to-a-private-pension-explained/tax-relief-on-pension-contributions-explained-a27f53z7qg3f