Deferred state pension choices. lump sum ?

the_gardener_2

Hello all

I am 71 and just retiring at last . I have DB pensions. I am about to claim a deferred state pension. YES I know possibly not a good decision.

So my choices are with state pension

amount higher

or lower amount equates to approx 600 per annum lower and 13500 lump sum

I do not need the money being in a reasonably good situation

my temptation is to take the lump sum and invest perhaps start a SIPP

any thoughts or comments

SVaz

Well you can only pay £2880 into a Sipp each year and it’s pointless when you get to 75, so maybe not the best idea.

DRS1

With the DB pensions you can get a tax free lump sum but with the state pension the lump sum you get if you have deferred it is taxable. There used to be some funny rules about how it was taxed (so it couldn't push you into a higher tax band) but I can't remember if those apply to the new state pension.

Marcon

You might want to refresh your memory of what was said in your own thread of a couple of years ago which includes a link clarifying the tax treatment, and details of the future increase position:

https://forums.moneysavingexpert.com/discussion/6543272/deferred-state-pension

If you want to take the lump sum and invest it in a SIPP, you'd need to do so while you are still earning, otherwise (as pointed out above) you are limited to a gross contribution of £3,600 per annum until you reach age 75.

Are you sure that starting a SIPP isn't just going to give you another set of questions to ask yourself (or ask here!), in exchange for what might be a relatively modest tax saving, depending on your other income? Sometimes simplicity trumps beating the taxman…

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/6684829/deferred-state-pension-choices-lump-sum

Whatever you do make sure you fully understand how tax works.

The only way you (as a post 2016 State Pension age person) can get a lump sum is by backdating your claim. For a maximum of 12 months. But the pension payable for that period is treated as taxable in the tax year it relates to.

So at the moment it would be roughly 50% taxable in 2025/26 and 50% in the current tax year.

xylophone

See (under Reach state pension age on or after 6 April 2016)

https://www.litrg.org.uk/pensions/state-pension/tax-state-pension/putting-deferring-claiming-state-pension

the_gardener_2

https://forums.moneysavingexpert.com/discussion/comment/82151686#Comment_82151686

Phew thanks for that but I guess its a bet on longevity.