Pension forecast after deferring. Is this likely to be correct?

ABN

I reached retirement age back in 2015. Annuities were so bad at the time that I decided to defer the state pension and opt for drawdown.

The drawdown will be ending soon so phoned to get a pension forecast.

The forecast came the other day and just included figures for the state pension, the extra pension and lump sum I can get if I forego the extra amount. They don`t include any detail as to how the figures were derived.

I do have the full qualifying amount of stamps but can`t remember about serps I think I was in for some of the time but also opted out for some of the time.

The state pension amount was £290 per week which is much more than I was expecting.

So questions are

How likely is it that they could have made a mistake?

How can I find out if it is correct?

If it is indeed to high what will happen long term? Do they review pension payments like they do with benefits, which they have to do because peoples circumstances change which would not be the case for someone just drawing their pension

Marcon

ABN said:

I reached retirement age back in 2015. Annuities were so bad at the time that I decided to defer the state pension and opt for drawdown.

The drawdown will be ending soon so phoned to get a pension forecast.

The forecast came the other day and just included figures for the state pension, the extra pension and lump sum I can get if I forego the extra amount. They don`t include any detail as to how the figures were derived.

I do have the full qualifying amount of stamps but can`t remember about serps I think I was in for some of the time but also opted out for some of the time.

The state pension amount was £290 per week which is much more than I was expecting.

So questions are

How likely is it that they could have made a mistake?

How can I find out if it is correct?

If it is indeed to high what will happen long term? Do they review pension payments like they do with benefits, which they have to do because peoples circumstances change which would not be the case for someone just drawing their pension

You reached SPA before 6 April 2016, so your State Pension increases by the equivalent of 1% for every 5 weeks you defer. This works out as 10.4% for every 52 weeks. If they gave you the 'starting figure' for your state pension (not sure from your post?) then you can do a rough calculation using that and increasing it year by year in line with state pension increases. https://adviser.royallondon.com/technical-central/rates-and-factors/state-pension/basic-state-pension-rates/

BUT - and it's a big and possibly very profitable but - if you take the 'extra' as a one-off lump sum, it is taxed in truly exceptional way. You might not need to pay any tax at all on it. See https://www.litrg.org.uk/pensions/state-pension/tax-state-pension/tax-deferred-state-pension-lump-sums and scroll down to the section 

Tax on the lump sum

The rate of tax that will be used on your state pension lump sum is generally the highest marginal rate that applies to your other income for the applicable tax year. See the heading below: Tax year in which the lump sum is taxed.

This is intended to avoid the lump sum (or part of it) being taxed at a higher rate than you would have paid had you not deferred it. However, the rules may not necessarily give that result.

While this can mean you can pay no tax at all on such a lump sum (if all of your taxable income falls within your personal allowance, for example), it is important to bear in mind that when you are looking at your ‘other income’ you must include any regular state pension that will come into payment once deferral stops. 

(have a look at the link for examples, more info etc)

Brie

The only thing I'd warn you about is to be careful about doing any back dating of your SP particularly if you are on any sort of income related benefits as this can mean you weren't eligible for them and therefore will need to pay the benefits back.  

ABN

The £290 is for the basic state pension. The extra is £299 so does follow the 10.4% which I am happy about.

I have always found pensions, and state pensions in particular, very confusing so have always stuck my head in the sand and pretended that they are not there.

I don`t know why but I was sort of expecting around £170 with a bit on top for the time I was opted in. So the £290 came as a bit of a shock, a welcome one of course.

So trying to establish whether they are likely to have made a mistake and what would happen if they have.

Does £290 seem a realistic amount?

I am fortunate enough to not be on nor ever have been on benefits.

P.S. I am a basic rate tax payer so the lump sum as far a I know would be taxable. But I will check your link just in case thanks

Dazed_and_C0nfused

ABN said:

The £290 is for the basic state pension. The extra is £299 so does follow the 10.4% which I am happy about.

I have always found pensions, and state pensions in particular, very confusing so have always stuck my head in the sand and pretended that they are not there.

I don`t know why but I was sort of expecting around £170 with a bit on top for the time I was opted in. So the £290 came as a bit of a shock, a welcome one of course.

So trying to establish whether they are likely to have made a mistake and what would happen if they have.

Does £290 seem a realistic amount?

I am fortunate enough to not be on nor ever have been on benefits.

P.S. I am a basic rate tax payer so the lump sum as far a I know would be taxable. But I will check your link just in case thanks

It would.  If you opt for the lump sum you need to be extremely careful that the normal State Pension payments you will start to receive don't take you into the higher rate bracket.

That would double the tax from 20% to 40% and with the pre 2016 State Pension deferral lump sum the appropriate rate, 0%, 20% or 40%, is charged on the whole of the lump sum.

Marcon

Dazed_and_C0nfused said:

ABN said:

The £290 is for the basic state pension. The extra is £299 so does follow the 10.4% which I am happy about.

I have always found pensions, and state pensions in particular, very confusing so have always stuck my head in the sand and pretended that they are not there.

I don`t know why but I was sort of expecting around £170 with a bit on top for the time I was opted in. So the £290 came as a bit of a shock, a welcome one of course.

So trying to establish whether they are likely to have made a mistake and what would happen if they have.

Does £290 seem a realistic amount?

I am fortunate enough to not be on nor ever have been on benefits.

P.S. I am a basic rate tax payer so the lump sum as far a I know would be taxable. But I will check your link just in case thanks

It would.  If you opt for the lump sum you need to be extremely careful that the normal State Pension payments you will start to receive don't take you into the higher rate bracket.

That would double the tax from 20% to 40% and with the pre 2016 State Pension deferral lump sum the appropriate rate, 0%, 20% or 40%, is charged on the whole of the lump sum.

Not inevitably. Depends if OP can 'reduce' their taxable earnings in the tax year in which they access the deferral lump sum. They can have up to their personal allowance without paying tax, so careful timing of starting to actually take their regular state pension payments might work for them now their drawdown is ending. If the deferral lump sum is tax free, then that + savings might give them enough to live on during that particular tax year.

ABN

Everyone’s financial priorities are different but for me the main priority is having enough money coming in weekly to not to be having to look over my shoulder to see if I have enough to pay the bills this week rather than having a pot of money just sitting there.

I appreciate that I could drip feed the pot in if and when needed but to me that would signal the start of a slippery slope. But that’s just how my mind set works. Any large items can be saved for plus I do have enough savings already to cover any/most unexpected expenses.

As such I have no intention of taking the lump sum.

The reason for the post was to establish whether the £290 was likely to be the correct amount, as it seemed a lot higher than I expected, and what the likely outcome would be in the future if it was incorrect.