To defer State Pension or not ?

brummie3

Would there be any point in deferring my State Pension by a year ? Approaching pension age with a private pension already paying £15k pa and a part time job paying £12.5k pa i cant see any tax benefit in deferring my pension or am i missing something.?

MallyGirl

The pension is increased by 5.8% for every year deferred 

fatbelly

Which means that the amount you lose in one year will take you 17 years to make up

Stubod

I decided to defer mine for 1 year. Have sufficient savings to last a year, and prefer to use them and gain the extra  5.8% indexed linked.

Gary1984

Might be an idea to defer until you fully retire so that you don't get too used to the extra cash and then need to take a painful £12.5k reduction when you stop working? It would even out your level of income.

xylophone

You are already paying tax at standard rate - presumably your state pension won't take you over the threshold?

Are you contributing to your current employer's workplace scheme?

If not, you could consider claiming your SP, opening a SIPP and paying up to your net earned  income into it.

Let's say you paid in  £10,000 - the provider would claim tax relief of £2,500 and add it to your pot.

At a time of your choosing you could take 25% of the total as a tax free pension commencement lump sum.

Or if you are contributing to your workplace scheme, would additional contributions be accespted?

Brie

only thing to add is that if you are claiming income related benefits (unlikely I suspect) don't back date your SP claim as it can mess you up royally.

jamesd

Tax isn't the main reason to defer, extra guaranteed income with uncapped inflation is. Life expectancy for a 65 year old man is 85 with a one in four chance of 92 and one in ten of 95. The state pension provides longevity protection, paying out however long you live.

What you'd do with the money instead matters. Often state pension deferring will beat that.

The part time job means you can make gross pension contributions of that much, however much work income you get each year. Often a good or great move.

Martin_the_Unjust

I was in a similar position to yourself and it actually made financial sense for me to take the state pension and give up the part time job.

As my wife was not working that enabled us to drop down to one car and to take our holidays by booking at the last minute instead of months in advance. The savings those two things gave us were approximately equal too my part time earnings after tax.

Steve_666_

xylophone said:

You are already paying tax at standard rate - presumably your state pension won't take you over the threshold?

Are you contributing to your current employer's workplace scheme?

If not, you could consider claiming your SP, opening a SIPP and paying up to your net earned  income into it.

Let's say you paid in  £10,000 - the provider would claim tax relief of £2,500 and add it to your pot.

At a time of your choosing you could take 25% of the total as a tax free pension commencement lump sum.

Or if you are contributing to your workplace scheme, would additional contributions be accepted?

I'm effectively doing this, taking the SP and increasing my SIPP contribution by a similar amount. 

ukdw

Agreed I don't think there is any great tax benefit in the OP deferring, the main benefit of deferring for a small number of years is the 5.8% uplift.   

The two times when I can think that there may be a tax benefit are:
1) In normal times where tax bands going up every year, if you are nearing say the 40% band - and deferring either for a few months within a year or for the full year would keep you out of the 40% band - with the hope that maybe next year the tax band goes up by more than the 5.8% + Triple lock uplift.

2) For non earners - who are taking advantage of the non earner private pension contribution £2,880 -> £3,600   £720 free cash option.  The benefit would likely drop a fair bit as soon as you start taking a full year of state pension - as some of the £3,600 would start to be taxed at 20% -  so deferring for a few weeks or the whole year would potentially still allow for full £720 gain - so would in effect slightly reduce the amount of cash lost by the SP deferral.   I guess the counter to this though - is that the 5.8% uplift when SP is eventually taken would reduce £720 benefit too - but over a much longer period.