Suspending state pension payments and withdrawing equivalent amount from a crystallised pension pot

TuonoTony

I've been taking my State pension for three years now, but have a pension pot of about £12k ( I have others but it's this one that I'm considering using).

If I suspend my state pension and draw an equivalent amount from my crystallised pension pot as drawdown, my income would stay the same- just under the 0% threshold.

Which means, as far as I can see, that Is withdraw £12k from my pension pot without having to pay tax on it, then, when I restart taking my pension after the pot is emptied, it will have increased by the deferment percentage for the suspension period.

Is there a flaw to this logic?

Suzycoll

https://forums.moneysavingexpert.com/discussion/6677882/suspending-state-pension-payments-and-withdrawing-equivalent-amount-from-a-crystallised-pension-pot

Hi Tony

I believe that when you start receiving your SP you cannot suspend it. The only time you can do this is not to claim it from the beginning i.e defer

I'm not 100% positive if this is correct though

QrizB

Is there a flaw to this logic?

What exactly are you trying to achieve?

The full New state pension currently uses pretty much all of the personal allowance. If you defer your state pension, any additional pension that results will be above your personal allowance and will be taxable.

That's no different to leaving your state pension in payment and taking say £600 a year from your crystallised pension pot.

Are you thinking that the state pension is exempt from income tax? Because that's not true.

mrklaw

I’d argue the best tactic would be to take the entire amount immediately and take the 20% tax hit. The longer you wait, the more ‘catch up’ tax will be due as the state pension breaches the personal allowance so effective tax will be more than 20%

strike while the iron is hot

xylophone

I believe that when you start receiving your SP you cannot suspend it.
The only time you can do this is not to claim it from the beginning i.e
defer

See

https://www.royallondon.com/guides-tools/pension-guides/pension-basics/deferring-your-state-pension/

Can you defer if already claiming your State Pension?

If you’ve already started claiming your State Pension, you can still
defer it. If, for example, you decide to go back to work or to run your
own business after you’ve retired, you may not need your State Pension
income. However, you can only defer your State Pension this way once. If
you change your mind and start claiming again, you can’t defer it a
second time  

If you want to defer your State Pension after you’ve already started claiming it, you should contact the Pension Service on 0800 731 0469 and let them know.

MK62

https://forums.moneysavingexpert.com/discussion/6677882/suspending-state-pension-payments-and-withdrawing-equivalent-amount-from-a-crystallised-pension-pot

If you defer a full NSP of £12548 for one year, you'll currently get an extra £728pa in SP for life (indexed to CPI), once you resume your state pension. Have you investigated how much you'd get if you used the SIPP to buy an index linked lifetime annuity?……(and that wouldn't be deferred for a year, but obviously the amount you'd get is age dependent)

poseidon1

Struggling to see any meaningful rationale to deprive oneself of 80% of the state pension for a year merely to avoid 20% tax thereon. The extra £728 p.a of state pension on resumption mentioned by @MK62, would nominally take 13 years to recover the post taxed state pension deferred.

Even if you do not require the taxed income to live off, it can as example be invested to produce future tax free income (via ISA), purchase premium bonds or generally enhance capital savings for future income. This really seems like a bizarre example of the tax tail wagging the dog.

Marcon

https://forums.moneysavingexpert.com/discussion/comment/82084194#Comment_82084194

Commendable as it is to try and help others, it might be better not to post if you aren't certain of your facts (or you could simply google and check before posting…). The problem is that some people who read an incorrect post will remember the comments in that post, never come back to see what else has been posted, and then work on incorrect information for ages, often 'helpfully' sharing it with others with the best of intentions. If there was ever a topic where that holds true, it has to be pensions!

Suzycoll

https://forums.moneysavingexpert.com/discussion/comment/82084697#Comment_82084697

I apologise Marcon

As you said I was only trying to help😗

Although I did mention that I wasn't sure the information was correct . By the same score the person who asked the question could have also googled ?

I thought the point of this forum was to get advice & also do your own due diligence

Have a nice day 🙂

horsewithnoname

I’m impressed you can live on £12,000 odd a year. Have both and treat yourself, life is short.

kempiejon

This thread got me thinking. Would the £12k pension be a defined contribution, perhaps 25% would be tax free so not using the full personal allowance. Use it or lose it with annual allowances. Bouncing the state pension for one year gives a ~5.8% uplift from HMRC*. Seems in the ball park for an index linked** annuity for a 68 yo male. That gain, like the rest of the SP, is uplifted (or not) by the prevailing rules. So pacing inflation just now. I read it'd be 15 years to pay back the nominal.

Perhaps another more convoluted spin, for those tax maximisers; if not already considered or other plans don't scupper could be to keep the SP in payment, take the £12k from the pension if 25% tax free then a liability on the remaining £8k. Assuming there are no other contributions to pensions nor relevant income add £2880 to a SIPP for the next 3 years and get £720 tax relief each year. Of course now there's ~£11k taxable in a pension but by then SP might exceed annual allowance so as we're paying some tax on some income may as well use the 20% band after another 25% tax free empty the SIPP, perhaps add to another SIPP or ISAs, philanthropy or indulgences.

*https://www.gov.uk/deferring-state-pension/if-you-reach-state-pension-age-on-or-after-6-april-2016
**https://www.legalandgeneral.com/retirement/pension-annuity/guides/best-annuity-rates/