Defer state pension?

sheslookinhot

xylophone said:

And taxation, particularly if adding the pension would push your wife into the 40% tax band.

OP says

 It seems sensible to draw it immediately unless there are tax reasons otherwise such as it making you a higher rate taxpayer (which she already is, 

In the OP's wife's position, my inclination would be to draw the SP and contribute to a SIPP as mooted by the OP.

If paying higher rate tax, is their any benefit to contributing to a SIPP.  Assuming also a HR tax payer at time of withdrawal ?

aroominyork

sheslookinhot said:

xylophone said:

And taxation, particularly if adding the pension would push your wife into the 40% tax band.

OP says

 It seems sensible to draw it immediately unless there are tax reasons otherwise such as it making you a higher rate taxpayer (which she already is, 

In the OP's wife's position, my inclination would be to draw the SP and contribute to a SIPP as mooted by the OP.

If paying higher rate tax, is their any benefit to contributing to a SIPP.  Assuming also a HR tax payer at time of withdrawal ?

I expect to withdraw as a basic rate taxpayer which has a 6.25% benefit compared to an ISA if you pay in as a basic rate taxpayer, or 41.67% if you contribute as a higher rate taxpayer since (25 + (75 * 0.8)) / 60 = 41.67%. If you withdraw as a higher rate taxpayer the benefit of SIPP over ISA is (25 + (75 * 0.6)) / 60 = 16.67% so still very worthwhile.

PS  To pre-empt posters with an eye for detail, the above calcs do not reflect that as a higher rate taxpayer, a net contribution of £60 in a SIPP translates into £80 in SIPP with £20 relief reclaimed. If that £20 is ringfenced from tax (eg in an ISA) and you retire as a basic rate taxpayer, the benefit is (20 + 20 + (60 * 0.8)) / 60 = 46.67%. As a higher rate taxpayer at both ends the benefit is 20%.

Albermarle

sheslookinhot said:

xylophone said:

And taxation, particularly if adding the pension would push your wife into the 40% tax band.

OP says

 It seems sensible to draw it immediately unless there are tax reasons otherwise such as it making you a higher rate taxpayer (which she already is, 

In the OP's wife's position, my inclination would be to draw the SP and contribute to a SIPP as mooted by the OP.

If paying higher rate tax, is their any benefit to contributing to a SIPP.  Assuming also a HR tax payer at time of withdrawal ?

In most of the pension calculations you see on here , there tends to be an assumption that the retiree will be a basic rate taxpayer, as the large majority are. Anyway arroominyork has shown by calculation there is still a significant benefit ( assuming LTA is not coming into play, which is quite possible if you are a higher rate taxpayer in retirement)

aroominyork

On another thread I explained that OH is in the process of claiming her NHS pension (which she did not realise she could begin drawing four years ago). She is currently employed and is a higher rate taxpayer (salary c.£55k). Can I please check that she can obtain higher rate relief on the tax paid on both the NHS pension and state pension by making SIPP contributions (contributions equal to twice the 40% tax she pays, eg £10,000 of NHS/SP income, taxed at 40% so £8000 of net SIPP contributions), so long as she stays within the annual allowance and salary cap?

Dazed_and_C0nfused

The gross amount of the SIPP contribution will increase her basic rate band and her total tax liability, from all sources of taxable income, is calculated using that increased basic rate band.

aroominyork

Thank you D&C. As you know from previous posts I've always come at it from the other angle - looking at doubling the 40% tax paid to arrive at net SIPP contribution - but now I see how your way (the correct way) is more helpful. Thanks for persevering with me!