state pension take it or leave it.

the_gardener_2

Getting close to my state pension .   The issue is I work and will continue to do so .   I am a higher tax payer as well.     So do i defer it for a year or two and hope to live long enough enough to benefit.   I now find out that the pension comes off my personal allowance   ??   is this correct.  .     any comments

Dazed_and_C0nfused

State Pension is taxable but it only reduces your Personal Allowance if it takes your adjusted net income over £100,001.

If you have a PAYE source of income when you get your State Pension, whether that be a job or pension, then your tax code allowances will be reduced to take account of the State Pension as this is always paid gross with no tax deducted by DWP.

Thrugelmir

Are you maximising your ability to pay into a pension plan of some kind? 

ukdw

Each year of deferral I believe increases your SP by about 5.8%. So deferring from 65 to 66 would mean a break even age of about 83 ignoring inflation/growth and assuming the same tax rate in retirement.
If however you will be able get the deferred pension at a lower 20% tax rate then that would reduce the break even age down to about age 78.
If you defer for a second year it will of course push the break even dates back a bit,

Average lifespan for 65 year old is 84/86 (m/f) - so if you can benefit from lower tax on the deferred pension then there is a pretty good chance you will be better off deferring.

nb/ Also worth checking that you are due the full SP - because if not, purchasing extra years has better break even ages than deferral.

HappyHarry

It might be worth simply claiming the state pension and contributing more to a personal pension. That way you can reduce the risk of missing out if you were to die early, the personal pension can claim tax relief, and you can claim further tax relief via self assessment.

Linton

The real benefit of deferring State Pension is not so much getting the cost repaid in your lifetime but rather increasing the amount of guaranteed inflation linked income you have.  It is much cheaper than buying a annuity.  You are unlikely to get a return from your investments that that gives you inflation matching+5.8% income.

So if you have no guaranteed inflation linked income other than SP then I suggest you defer your SP for a few years.

The one downside is that your beneficiaries will probably lose out, so it depends on your priorities.

the_gardener_2

no dependants      DB final salary pension waiting   i guess take it and avc  some interesting thoughts

SomeMadeUpName

This isn't advice/an answer, as I don't have enough knowledge for that, it's more of a question to those who do have the knowledge:

Would it be a fair enough summary to say:

Deferring the state pension is a pretty decent option in % growth terms, but as the benefit gained dies with the recipient then getting value is dependant on living long enough?
Alternatively:
Taking the SP and accepting the increase in (un-needed) taxable income but then (if possible) increasing private pension contributions to compensate may not give the immediate % growth but 'protects' those monies by putting them into a pot available to beneficiaries in the event of early demise (partner or kids, etc)?

I'm thinking of the sort of situation where additional pension contributions can still be made because say: otherwise none would be, or the individual is still working, or is a Co director, etc.

nigelbb

I am a higher rate tax payer still working while drawing my state pension on the basis of "a bird in the hand..." but I am paying more than I receive as pension into a SIPP. I am not investing in any stocks but keeping the entire SIPP in cash as it is just being used as a mechanism for reducing tax. 

GibbsRule_No3.

I finally attained my SP age in March last year and took it right away. If the SP ages had not moved from 60-65 as they were when I started work, I am guessing it was a more attractive option to leave it, if not needed. Life expectancy after SP being more years to gain by not taking it then.
I did not take one of my work pensions right away, only deferred for a year when my IFA pointed out with the amount I earn ( unlike OP) not really worth deferring.  I just dropped down to a three day week and put the money into my works Stakeholder pension, better return than a bank.  With the COVID year continuing to work really worked out for me.

Stubod

I am thinking about deferring my SP for a year or two, (I understand that 2 years is probably about "optimum").

The main reason is that I have a rather limited deferred DB pension that will not increase once I start to take it at 65. My DB pension combined our with savings and investments will provide more than enough to cover the 2 years deferral, and I prefer the added "security" of a slightly larger SP that is indexed linked. I don't think there is a better "risk free" alternative?