Thinking about defering State Pension

QrizB

Asimovs_nightfall said:

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? 

The state pension you've accrued by SPA gets the triple lock (while the triple lock lasts).

The additional state pension that you earn by deferring it only increases by CPI.

Triumph13

To put it in simple terms, you want to gamble just under £29k (3 years of SP less 20% tax) in order to possibly save a maximum of £7.2k tax by being able to pull more out of your DC at 20% tax.  All in the hope you live long enough to come out ahead of the game once you're in your 80s and that your DB and enhanced SP are somehow less likely to breach a frozen 40% band than your DC drawings are.

That doesn't immediately strike me as attractive, 

ukdw

Another way of thinking about this sort of question could be that rather than the SP pushing your DC withdrawals into 40% tax, you could instead think of the £12k DC withdrawals affected as still only paying 20% tax. 

Allowing the SP to commence (without lowering your DC withdrawals) would then give you an extra £7.2k a year net after the 40% tax on the SP vs deferring it (which is a bit like paying 100% tax on the SP).


Along similar lines - thinking about 40% vs 20% - I think a lot of people tend to think that 20% as fine, but 40% as too much -  40% by itself is quite a lot, but its less than the 60% you pay at £100k+ - and its actually really only 20% (or 25% I suppose) more than the ok 20%

Irrespective of state pension which is a few years off for me - I'm personally considering whether to keep my DC pension drawdowns in the 20% band, or take a few of the recent gains and let it drift a bit into the 40% band.

Asimovs_nightfall

QrizB said:

Asimovs_nightfall said:

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? 

The state pension you've accrued by SPA gets the triple lock (while the triple lock lasts).

The additional state pension that you earn by deferring it only increases by CPI.

It must cost more to work that out than it does to pay it! 

poseidon1

Aretnap said:

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.

My sentiments exactly.

Seems utterly perverse to me people take extreme measures to limit income to the 20% tax bracket, rather than looking to increase their overall accessible income ( net of tax).

I was a 40% taxpayer when working, retired as a 20% taxpaying retiree but with the objective of getting back to the higher reaches of 40% ASAP. Took 8 years, but now got there following commencement of State pension.  Not a follower of this ' make do and mend' philosophy inherent in limiting ones income.

Cobbler_tone

I've wrestled with this for years as a worker. For the past few years I have actively tried to avoid paying 40% tax. Whilst it means you contribute more to your pension, it means that you never get a net pay increase.
My take home pay is now similar to what it was in 2018. It does feel like a small 'win' to pay £15k in tax for several years and £7.5k a year for the past few, now I am in a position to do so. 

I guess in retirement it is slightly different and if I went into the world of 40% I don't think it would feel as emotive.
It is a bit like those I work with who say "I don't bother doing overtime as it isn't worth it after (20%) tax.", are they expecting cash in hand?! I'm sure the same can be applied to certain people on benefits.
Ultimately you are still going to be better off with a bigger income.

I think my retirement will be in the 20% world but I guess I will limit drawdown in topping up to the 40% band. 
I'd probably view that state pension as covering my tax bill and certainly can think of a situation where I'd considering deferring it, especially with the triple lock.

Gary1984

I think the OP's plan is a good one to a point. I probably wouldn't defer for more than a year or two as the terms get progressively worse for each year. But if in good health I think a couple of years deferment is a pretty good deal, provides some longevity insurance and will allow access to a decent chunk of the DC at 20% tax. I don't see much of a drawback.

Qyburn

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. 

You'll pay exactly the same amount of income tax whether your income comes from DB+DC+SP or whether you take the same total amount but just from DB+DC.

Deferring SP allows you to draw more from DC without paying higher rate. But it doesn't allow a higher actual income.