Tax implications of retiring half-way through the tax year?

Pat38493

sheslookinhot said:

Pat38493 said:

I did read on another thread that if you are planning to start taking the benefits on a DB pension scheme that is deferred, you should start taking the benfits on a date in the year that is after the anniversary date of when the pension was originally deferred.  The OP doesn't mention what type of pension is being claimed.  However, that is not a tax issue it's more of an issue with how the additions to the pension due to historical inflation are calculated.

I retired on 5th May 22, will start my deferred pension in April 23. Normally paid on last working day in April. I hadn’t considered your information when deciding to start my pension benefits.

I’d have to go back and look up the details but I’d it’s a DB pension where you have deferred benefits from some previous year, I understood that there is a small benefit from taking the pension after the next anniversary date of the date it was deferred.  Note the date it was deferred may not necessarily be the same as your retirement date (it isn’t in my case as my DB pension was frozen and closed to new entrants in 2008).

Was your pension deferred on the same date you retired (i.e. an active scheme and you just chose not to take it immediately) or was it deferred in some earlier year?

As I understand it, the annual uplift that is put on deferred DB pensions is dictated by some specific tables that are put out by the government - I will look up the name of it tomorrow.  The number that the actuaries use will (almost always) be higher if you wait until after the anniversary of the deferral date (which will then feed through to all future inflation increases).

There are better experts than me here who can clarify and I guess we would need to know exactly what scheme you are/were in to see if this situation apples to you.

caveman8006

Pat38493 said:

sheslookinhot said:

Pat38493 said:

I did read on another thread that if you are planning to start taking the benefits on a DB pension scheme that is deferred, you should start taking the benfits on a date in the year that is after the anniversary date of when the pension was originally deferred.  The OP doesn't mention what type of pension is being claimed.  However, that is not a tax issue it's more of an issue with how the additions to the pension due to historical inflation are calculated.

I retired on 5th May 22, will start my deferred pension in April 23. Normally paid on last working day in April. I hadn’t considered your information when deciding to start my pension benefits.

I’d have to go back and look up the details but I’d it’s a DB pension where you have deferred benefits from some previous year, I understood that there is a small benefit from taking the pension after the next anniversary date of the date it was deferred.  Note the date it was deferred may not necessarily be the same as your retirement date (it isn’t in my case as my DB pension was frozen and closed to new entrants in 2008).

Was your pension deferred on the same date you retired (i.e. an active scheme and you just chose not to take it immediately) or was it deferred in some earlier year?

As I understand it, the annual uplift that is put on deferred DB pensions is dictated by some specific tables that are put out by the government - I will look up the name of it tomorrow.  The number that the actuaries use will (almost always) be higher if you wait until after the anniversary of the deferral date (which will then feed through to all future inflation increases).

There are better experts than me here who can clarify and I guess we would need to know exactly what scheme you are/were in to see if this situation apples to you.

The consideration here is whether you want to include the inflation rate of the year in which you deferred in preference to the current year (you have to start the pension after the anniversary date to keep that start year inflation rate in the calculation)...until recently, you were much more likely to drop a high (old) inflation rate for a low (current) inflation rate. But now the situation is reversed: so for those retiring in 2022 or 2023 you may well find that you are better off retiring before your anniversary date!

sheslookinhot

Pat38493 said:

sheslookinhot said:

Pat38493 said:

I did read on another thread that if you are planning to start taking the benefits on a DB pension scheme that is deferred, you should start taking the benfits on a date in the year that is after the anniversary date of when the pension was originally deferred.  The OP doesn't mention what type of pension is being claimed.  However, that is not a tax issue it's more of an issue with how the additions to the pension due to historical inflation are calculated.

I retired on 5th May 22, will start my deferred pension in April 23. Normally paid on last working day in April. I hadn’t considered your information when deciding to start my pension benefits.

I’d have to go back and look up the details but I’d it’s a DB pension where you have deferred benefits from some previous year, I understood that there is a small benefit from taking the pension after the next anniversary date of the date it was deferred.  Note the date it was deferred may not necessarily be the same as your retirement date (it isn’t in my case as my DB pension was frozen and closed to new entrants in 2008).

Was your pension deferred on the same date you retired (i.e. an active scheme and you just chose not to take it immediately) or was it deferred in some earlier year?

As I understand it, the annual uplift that is put on deferred DB pensions is dictated by some specific tables that are put out by the government - I will look up the name of it tomorrow.  The number that the actuaries use will (almost always) be higher if you wait until after the anniversary of the deferral date (which will then feed through to all future inflation increases).

There are better experts than me here who can clarify and I guess we would need to know exactly what scheme you are/were in to see if this situation apples to you.

I didn’t actively defer my DB pension, I have just not commenced taking benefits yet. 

NelsonPK_UK

chubsta said:

I feel I have a pretty decent grasp of my finances and pension so this question is as a result of someone I work with saying it is an awful thing to retire in October because how it affects how much tax you pay, and that you should only retire at the beginning of a new tax year. So, hoping for some sensible advice!

I am a basic rate tax-payer, intending to retire half-way through the year. Until I retire I will be taxed at 20% of my wages, so surely after I retire I will be taxed at 20% of my pension or is it not as simple as that? Is it actually better to start taking the pension in April?

chubsta said:

I feel I have a pretty decent grasp of my finances and pension so this question is as a result of someone I work with saying it is an awful thing to retire in October because how it affects how much tax you pay, and that you should only retire at the beginning of a new tax year. So, hoping for some sensible advice!

I am a basic rate tax-payer, intending to retire half-way through the year. Until I retire I will be taxed at 20% of my wages, so surely after I retire I will be taxed at 20% of my pension or is it not as simple as that? Is it actually better to start taking the pension in April?

I can't post links yet, but have a read at the above website