Taking pension, continue to work.

Steviekia

Hi,

Hopefully someone can help,

I will be 60 in June & plan on taking my DB pension & continue to work for 1-2 more years.

My pension will be approximately 60k lump sum & £800 per month.

I earn approximately 45k per year,so pay a higher rate of tax (Scotland)

My question is would I be better to pay £800 per month into my new CARE pension as AVCs to save on tax,rather than it being taxed as income at the higher rate?

I hope I have explained it correctly,

It seems obvious that I should,which probably means I shouldn't.

Thanks for reading.

Marcon

https://forums.moneysavingexpert.com/discussion/6654073/taking-pension-continue-to-work

Two thoughts:

• if you take a lump sum of £60K tax free cash and then do what you're suggesting, it looks perilously close to pension recycling with the attendant tax penalties
• what happens if you don't take your DB pension in June - how much will it increase if you delay (defer) taking it?

Tony_J

Have you checked what difference deferring the DB pension would make. I had one that I didn't consider offered a reasonable increase for the delay. But one I know of does give a significant boost, so could be worth it.

Also if your current pension contributions are taken by salary sacrifice and you can increase the amount you contribute you would save on N.I.

Steviekia

Thanks for the replies,

According to my work mates who have taken their pension in the last couple of years, under the same circumstances,they all say they were better off taking their pension & paying the high rate off tax rather than leaving it .as it didn't increase much at all.

Is there a certain amount I could put into AVCs that would be deemed ok?

Also,if I do take my pension,I have the option of joining the CARE scheme or a DC scheme ,

Am I wrong to think that the CARE scheme is the best option, even if it's only for a short time?

Thanks so much for your help.

Stevie.

Steviekia

https://forums.moneysavingexpert.com/discussion/comment/81872241#Comment_81872241

https://forums.moneysavingexpert.com/discussion/comment/81872241#Comment_81872241

Hi Marcon

I've had a check & it seems that leaving it a year adds approximately £500 to my total pension,which doesn't seem great .

Steviekia

Hi Tony

It would be salary sacrifice,so if I'm correct,i would save 42% using AVCs,but I've probably got it all wrong.

& deferring for a year only yields an extra £500 annually.

Thanks.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/81872681#Comment_81872681

How have you got to 42%?

Salary sacrifice generally beats other methods as although you don't get any pension tax relief (as they are employer contributions) you avoid paying tax and NI on the amount sacrificed.

QrizB

deferring for a year only yields an extra £500 annually

For a pension paying £800 a month at age 60, gaining £500 a year (£40 a month, 5%) sounds about right for deferring it a year.

Steviekia

https://forums.moneysavingexpert.com/discussion/comment/81872732#Comment_81872732

If I took the £800 a month as earnings I would have to pay 42% tax on it,if I use the £800 a month as AVCs I would avoid the tax ,or am I completely wrong?

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/81872789#Comment_81872789

But if you are only 60 aren't you paying National Insurance on your earnings?

Steviekia

Thanks Dazed

Just doesn't seem worth it,even paying tax on the £800 a month would still give me around 5k a year & id rather have money in my 60s than 70s