Pension Question

dales1

Hi Aud; (and in simple terms) if it costs you £7,700 in lost SP, to gain £446 pa, it's going to take you approaching 17 years to break even - and that's just to get your stake back.

Personally I would rather have the £7,700 accumulating in my investment account whilst I'm a spritely new pensioner. (Whereas deferral would start to yield a small surplus in 17 years' time when, (if I'm even still here) I'm too past it to spend it).

You could buy a new old-age electric bike or trike with that dosh !

(I claimed my own pension immediately, with no doubts whatsoever (now that the previous deferral rates have been rendered sensible)).

Dales.

PS Your boldening should be that it's probably not worth deferring.

Thrugelmir

dales1 said:

Hi Aud; (and in simple terms) if it costs you £7,700 in lost SP, to gain £446 pa, it's going to take you approaching 17 years to break even - and that's just to get your stake back.

Personally I would rather have the £7,700 accumulating in my investment account whilst I'm a spritely new pensioner. 

Unlike your investment account, deferring the state pension at least provides a guaranteed return. 

dales1

Yes, but deferring pension gives a return that's guaranteed to be a loser, unless you live for about another 17 years !!

(Money in my investment / bank account either earns a guaranteed fixed or a variable return (at my choice). And I can pay for my boiler repairs or gift it to my children, well before IHT bites in 7 years.

Thrugelmir

dales1 said:

Yes, but deferring pension gives a return that's guaranteed to be a loser, unless you live for about another 17 years !!

(Money in my investment / bank account either earns a guaranteed fixed or a variable return (at my choice). And I can pay for my boiler repairs or gift it to my children, well before IHT bites in 7 years.

Then your optmism for potential returns from both cash on deposit and investments far exceeds mine at the current time. Minimising losses seems a more appropriate stance. 

Daliah

Thrugelmir said:

Then your optmism for potential returns from both cash on deposit and investments far exceeds mine at the current time. Minimising losses seems a more appropriate stance. 

You would need to be an exceptionally patient investor, with very low expectations, if, at the age of 66, you would would make an investment that you know will not yield a return until you are 83 or thereabouts.

NB. According to ONS, 83 or thereabouts is not too far from the current average life expectancy at age 65.  

dales1

I'm not sure we're on the same wavelength, Thrug

The question isn't about relative percentage returns on a deposit/investment/pension.

The question posed is whether to sacrifice [not to postpone or to defer] but sacrifice one full year's pension now, in exchange for a specified higher pension payable commencing from a future date.

And on these present government terms, I would certainly myself take this year's money, and not the future increase.

(And so would the professor).

Audaxer

dales1 said:

Hi Aud; (and in simple terms) if it costs you £7,700 in lost SP, to gain £446 pa, it's going to take you approaching 17 years to break even - and that's just to get your stake back.

Personally I would rather have the £7,700 accumulating in my investment account whilst I'm a spritely new pensioner. (Whereas deferral would start to yield a small surplus in 17 years' time when, (if I'm even still here) I'm too past it to spend it).

Okay, here is another way to look at it from my point of view. I have a few Investment Trusts in my income portfolio, generating an income of around 4.5% per year in dividends, with a good history of increasing with inflation each year, but not guaranteed to increase with inflation every year. I don't intend to ever spend the capital, just continue to receive the income. So, a genuine question - should I keep £7,700 in an IT that generates £346 in income per year, possibly increasing with inflation every year, or sell the £7,700 in the IT and use the proceeds to pay myself the equivalent of deferring my SP for a year, and thereafter get an extra £446 per year from my SP, guaranteed to increase each year with inflation?  

eric4395

The discussion on this topic has concentrated on whether to defer my state pension which I haven't done since i started receiving it 18 months ago and won't be now.  As said I looked at the figures at the time and didn't fancy waiting approx 17 years for a return. So regarding the original point I was trying to say  was should I or  "WOULD YOU" add  £12,000 =(£15000   tax relief)into my  6 figure pension pot ( drawdown). Despite clawing back £3000  in tax relief I feel that my £15,000  would be lucky to even show in my next statement at the end of the year and the total sum of my pension will be less than it is now even adding this sum?. So am I as well not adding any money at the moment and just pay the 40% on what I've earned in my state pension (prob about £5000)  as it may be less than my losses  in my pension. So what would you do at the present time. Just pay my tax bill or add the £12000  into my pension? 

Albermarle

I already partly at least answered your question by saying you are assuming that financial markets will continue to go down for the foreseeable future , when in reality nobody knows .

However if you are  really sure that things will go South, then not only should you not add any more to your pension but you should also  convert all the existing investments into cash , to avoid further losses. If markets turn upwards, you will have lost out though.

On the other hand if you think that investing is a long term game and trying to predict markets is a non starter , then you should stay invested and add your normal contribution .

You could go half way and convert some investments to cash and/or only add £6K .

Can only be your call in the end.

Just pay my tax bill or add the £12000  into my pension? 

Your tax bill will stay the same whatever you do .

Audaxer

eric4395 said:

The discussion on this topic has concentrated on whether to defer my state pension which I haven't done since i started receiving it 18 months ago and won't be now.  As said I looked at the figures at the time and didn't fancy waiting approx 17 years for a return. So regarding the original point I was trying to say  was should I or  "WOULD YOU" add  £12,000 =(£15000   tax relief)into my  6 figure pension pot ( drawdown). Despite clawing back £3000  in tax relief I feel that my £15,000  would be lucky to even show in my next statement at the end of the year and the total sum of my pension will be less than it is now even adding this sum?. So am I as well not adding any money at the moment and just pay the 40% on what I've earned in my state pension (prob about £5000)  as it may be less than my losses  in my pension. So what would you do at the present time. Just pay my tax bill or add the £12000  into my pension? 

Apologies for going off topic.  To your original question as to whether we would add the £12,000 to a pension at this time to get the £3,000 tax relief. I think in that position I would because you wouldn't actually need to invest any of the £15,000 if you didn't want to as you could leave it all as cash until you were ready to either draw it out, or invest it later maybe when markets had fallen a bit more. However markets may start to rise and you could miss out by not investing now at the current low prices, but that is up to you.  As I say you could just leave it in there as cash meantime.

By saying you should put the £12,000 into your pension, I'm assuming you can and are not already subject to the MPAA £4,000 contribution limit, which would apply if you have already drawn any taxable income from your pension?