Deferring state pension

moneylover

Interesting article in the Times today

http://business.timesonline.co.uk/tol/business/money/pensions/article3211193.ece

EdInvestor

Not a good idea IMHO

If you decide to take an increased pension, it will take several years to claw back the income you have missed. An example provided by the Department for Work and Pensions (DWP) shows that if your total state pension is £100 a week and you deferred for two years, you wouldreceive an extra £20.80 a week, or £1,080 a year. But during the deferral period you will have missed out on payments totalling £10,400, which means that it will take about ten years to get that back. So a woman who defers from 60 to 62 needs to live until about 72 to break even.

For the best deal, get the DWP to pay your state pension on a weekly basis.

MrChips

The majority of women will live to 72, why isn't it a good idea, especially if you can afford to defer it? If you know you have a reduced life expectancy, of course you should take it as early as possible, but that doesn't apply to most people.

moneylover

EdInvestor wrote: »

Not a good idea IMHO



For the best deal, get the DWP to pay your state pension on a weekly basis.

I am deferring mine. Am still working - if I took the pension I would be pushed into higher tax bracket. The main thing is that I am glad to have a choice - it can be reviewed at any time.

red_bertie

Been searching the forum for an answer to this must be looking in the wrong places. In line with above, can I ask ..... if I take a pension, but I am still working [lower tax bracket and no chance of going into higher rate ], how will I be taxed on what is effectively 2 incomes [pension + earnings]?
Hope this makes sense!:o

RB

jem16

If you are already earning more than your tax free allowances you will pay the full 22% ( 20% from April ) on your pension. If you go into higher rate tax you would pay 40%.

red_bertie

Sorry to be dense, but can I clarify:

I would pay tax on:

earnings + pension, less current personal allowance = £x taxed at 20%? :eek:

Thanks jem.

RB

red_bertie

or 40% :rotfl: !

jem16

Assuming under 65 you can have income ( salary, pension, savings interest, dividend payments) of;

£5225 tax-free
next £2230 is taxed at 10% ( from April this 10% band will disappear)
From £2231 to £34,600 is taxed at 22%
Income above £34,600 is taxed at 40%

Above 65 your tax-free allowances increase to £7550 but only if your total income is less than £20,900. After that you lose £1 allowance for every £2 of income till around £25k you are back to the £5225 personal allowance.

From April the personal allowance will be £5435 and everything above that will be taxed at 20% until you reach the higher rate threshold (yet to be announced).

Jennifer_Jane

Can you look at the deferring of the basic state pension as being the same as an eventual interest rate of 10.4% per annum without tax ie 12.48% taking the 20% tax into consideration, with the resulting increased basic state pension also increasing at whatever annual rate?

So, if you are, say, 60 and plan to work for 2 years, and know you won't be getting a very good basic state pension (I think mine started at 52% without any deferral), isn't it worth it for the extra income you will get when you stop working?

Very interested to hear if my logic is right.
Thanks
Regards
Jen
x

sebastianj

Interesting, if you are getting occupational pension, not above 65, have a partner, then I think you will qualify for working tax credit as well.
seb