Thinking about defering State Pension

robrit61

I'd appreciate any comments on my thinking here.

I'm retired. Age 64. 

I have a DB index linked pension currently paying me £31K per annum.
I have a DC pension which I have had the 25% lump sum from currently there is £133K in there.

I decided to start taking as much as I could from the DC pension whilst  keeping my income just below the higher rate tax threshold. Which I've been doing for a couple of years now.  Much of the money from the DC pension has been re invested in my ISA (similar portfolio to the pension). Some I have spent upgrading my car.

My reasoning behind this was that I couldnt see the tax free personal allowance being increased by the Labour Government. And I did not want to pay 40% tax on my DC pension.

When I get my state pension due in October 2027 I will not be able to get very much out of my DC pension and still be a basic rate taxpayer. And with the DC pension now being subject to both IHT and probably income tax if I live past 75 it is no longer attractive for IHT planning. 

I am thinking that in a couple of years I'm still going to likely have around £100K left in the DC pension. I'm thinking about defering the State Pension so that I can take as much as I can from the DC pension and still pay only 20% tax. Maybe for three years or so. By which time it will be significantly depleted.

Then start taking the State pension.

I think that my health is pretty good. I lost a lot of weight recently. And am not on any kind of medication. 

Any thoughts on my rationale ?

Thanks

Robin

p00hsticks

If you die before taking the state pension your inheritors will get nothing from it (and ulness you save it all when you do take it they'll still get nothing from it). . 
If you die while there is still money in your DC pot ,your inheritors will get the majority of it, even if it triggers some IHT to pay.  

So if one concern is what you are able to leave after your death I'd be taking the State Pension rather than draining the DC one. 

Silvertabby

Break even point (for basic rate tax payers) for taking deferred State pension benefits is something like 18 years.  I'd take the State pension on time and limit the DC withdrawals.

robrit61

p00hsticks said:

If you die before taking the state pension your inheritors will get nothing from it (and ulness you save it all when you do take it they'll still get nothing from it). . 
If you die while there is still money in your DC pot ,your inheritors will get the majority of it, even if it triggers some IHT to pay.  

So if one concern is what you are able to leave after your death I'd be taking the State Pension rather than draining the DC one. 

Well it's a concern but the main issue I have is being stuck with a pension pot that I will end up paying higher rate tax if I want to get at the money. I'm estimating that in a couple of years I'd be able to get maybe £5k per annum out without that happening and that's going to diminish over time with the DB index linking and the triple lock. It's a result of the personal allowance being frozen for years. 

robrit61

Silvertabby said:

Break even point (for basic rate tax payers) for taking deferred State pension benefits is something like 18 years.  I'd take the State pension on time and limit the DC withdrawals.

The issue for me is that in time I won't  be a basic rate taxpayer if I want to get at my DC pension. 

JoeCrystal

robrit61 said:

The issue for me is that in time I won't  be a basic rate taxpayer if I want to get at my DC pension. 

Why is that a worry for you? 60% of the money is still better than 0% of the money. Don't let taxes become the tail wagging the dog.

Stubod

I think defering the SP is a bit "marginal" given the 18 year break even?? I defered for 1 year, (was going to defer for 2, but decided it was not worth it). 

My main reason was that most of my private pensions are not indexed linked, so my idea was to maximise a pension that was. (Aware that any defered SP is not subject to the triple lock).

robrit61

Stubod said:

I think defering the SP is a bit "marginal" given the 18 year break even?? I defered for 1 year, (was going to defer for 2, but decided it was not worth it). 

My main reason was that most of my private pensions are not indexed linked, so my idea was to maximise a pension that was. (Aware that any defered SP is not subject to the triple lock).

I hadn't realised that was the case. It's a good point. 

Marcon

You can overthink things... Sometimes the tax tail is allowed to wag the income dog, which seems to be the case here.

Aretnap

p00hsticks said:

If you die before taking the state pension your inheritors will get nothing from it. 

Of course, if your main concern is avoiding tax, this would be a good thing.

I'm being sarcastic if course, but reading these forums it's amazing how many people seem to have a mindset that having a small amount of money and paying no tax is better than having a large amount of money and having to pay a bit of tax on it. Obviously they never actually put it like that, but that's the attitude that drives their way of thinking. The OP own line of thinking does come across as... not a million miles from that attitude.

Asimovs_nightfall

Stubod said:

I think defering the SP is a bit "marginal" given the 18 year break even?? I defered for 1 year, (was going to defer for 2, but decided it was not worth it). 

My main reason was that most of my private pensions are not indexed linked, so my idea was to maximise a pension that was. (Aware that any defered SP is not subject to the triple lock).

How does this work out?