Should I take my state pension?

johntin11

"With regard to your own situation, you say that you are a 40% tax payer and that your pension contributions are "relief at source"."
I have been in touch with my works financial department and he has told me I am paid via a salary sacrifice arrangement.

MetaPhysical

I have done quite a lot of reading that states it's hardly ever worth deffering your SP for most people.  The only exception is if you are still working past state pension age and a higher rate tax payer - both boxes that you tick.

Dazed_and_C0nfused

johntin11 said:

"With regard to your own situation, you say that you are a 40% tax payer and that your pension contributions are "relief at source"."
I have been in touch with my works financial department and he has told me I am paid via a salary sacrifice arrangement.

Just so you fully understand this, salary sacrifice means you aren't contributing to the pension.

You are agreeing to a reduced salary in return for additional employer contributions.

You are not entitled to any pension tax relief on employer contributions so £100 added to your pension gives you a pension fund of £100, you don't get the additional £25 in basic rate relief like you would with relief at source contributions.

But you haven't had that £100 as income in the first place so avoided paying tax and National Insurance on it.

For most people it's the simplest and most tax (and NI) efficient option.

johntin11

Thank you all for your words of wisdom. I have also been reading and would like to ask another question.
Some say take the state pension and put it into a tax free isa. In my case would I pay the 40% tax on it first and then put the remainder into the tax free isa?

"Andrew Tully, technical director at Nucleus Financial, said an alternative to deferring your state pension payments could be to take them straight away and use them to invest in an Isa.

He explained: “That means you have access to that at any point, and it may grow over time."

Dazed_and_C0nfused

johntin11 said:

Thank you all for your words of wisdom. I have also been reading and would like to ask another question.
Some say take the state pension and put it into a tax free isa. In my case would I pay the 40% tax on it first and then put the remainder into the tax free isa?

"Andrew Tully, technical director at Nucleus Financial, said an alternative to deferring your state pension payments could be to take them straight away and use them to invest in an Isa.

He explained: “That means you have access to that at any point, and it may grow over time."

There would be no personal tax saving by putting the money into an ISA.

The income/gains you subsequently make within the ISA would be tax exempt but deciding to put money into an ISA doesn't change the tax position relating to where the money originally came from.

xylophone

You intend to continue to work  full time in the same job for the foreseeable future?

You make no personal contribution to your occupational pension under the salary sacrifice arrangement?

For example,  a person's salary would normally be £80,000 a year.

He sacrifices £20,000 of this in return for a like contribution by the employer to the pension scheme (together with the employer contribution)?

There is no personal tax relief on this because it is wholly an employer contribution.

The person pays tax on the remaining £60,000 salary, some at 40% rate.

He takes his state pension (say £11,500 a year).  This would be fully taxable at 40%, the tax being paid through his salary every month.

He opens a personal pension (relief at source) to run alongside his occupational pension.

He makes a monthly contribution.

The provider claims tax relief of 20% on this contribution.

As a higher rate tax payer, he advises HMRC and his tax code on the salary is adjusted.

https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/member-contributions-and-higher-rate-tax-relief/

You do not pay NI after SPA.

https://taxaid.org.uk/guides/information/an-introduction-to-income-tax-national-insurance-and-tax-credits/national-insurance/national-insurance-and-state-pension-age#:~:text=From state pension age, National,the position can seem complex.&text=As an employee you should,makes secondary (employer's contributions).

xylophone

Have you nominated a beneficiary of your pension? 

johntin11

Hi, sorry for the delay in replying. I have been extremely busy.
My wife is my beneficiary, if we both die together our son would then be the beneficiary.
I have a personal pension which I contribute 11% and the company contribute 15%. This is the one that is salary sacrifice.
I have a small merchant navy pension and a large defined contribution pension which I do not contribute to.

xylophone

I have a personal pension which I contribute 11% and the company contribute 15%. This is the one that is salary sacrifice.

This is your workplace pension?

When you say you contribute to this pension do you actually mean that you have reduced your salary by 11% so that the whole contribution is an employer contribution?

See https://thepeoplespension.co.uk/employers/salary-sacrifice/

xylophone

and a large defined contribution pension which I do not contribute to.

If you draw your state pension you could use it to contribute to this pension and claim higher rate relief as above?

You have said that when you retire you will  draw only as much in pension as will keep you a basic rate tax payer.