Take State Pension or defer - general principle

Primrose

My OH shortly has to decide whether to take his State Pension or defer it. We currently have sufficient income to live on and have done the sums. The debate now is whether he should take it when it's due and save or invest it to hedge against future inflation, or defer and have a larger sum later. Obviously nobody knows how long they're going to live for and if you die shortly having decided to defer, you lose everything you've ever contributed towards. Just wondering what have others in the same situation decided to do, and the reasons for their choice.

seven-day-weekend

We are not yet of State Pension age (January 2010 for me) but I personally will take it as soon as I can.

I'm sure other people can give you figures!

busy_builder

Funnily enough I'm having the same debate with SWMBO about my deferred pension that I can take now I'm 50 ?

I can have £5,520 pa + £27k tax free lump sum now or wait till I'm 62 and get £13k pa plus lump sum ??????

Its the bird in the hand syndrome.

We don't need the money either .....decisions, decisions

Primrose

Busy builder --I imagine that in your case, if you defer taking it for a while and you unfortunately die, your spouse would still get an income from it if she is your nominated beneficiary. The scandal with the State Pension scheme is that however much you've paid into it via your National Insurance contributions, if you die, the pension dies with you and your spouse/nominated partner doesn't get a penny, although of course she might in due course be able to claim a reduced pension for herself based on your contributions. So when the State won't give you any credit for what you've paid in over a lifetime, the temptation is to take it while you're alive and kicking so you get some benefit from it.

lilac_lady

I've just retired at 60 and have taken my state pension. If I continued working I would still have taken it although I hope I would have saved some of it. Life is too short to deny yourself a few luxuries. If you don't need the money at the money, take it, save some and enjoy the rest.

Mikeyorks

I think most consider that 'a State Pension in the hand' is worth two in promises?

However it's very tempting, if you don't actually need the income, to use deferment as a savings account. After all they add 2% over BofE base rate (assuming you take a lump sum ... rather than increment the pension) and you don't get that in many accounts?

And the tax position, when you do take a lump sum, is very beneficial. Whilst the sum is taxable .. it's not incremental to your income. So you only pay at your marginal rate .. and it doesn't count as an accumulation towards the clawback (just over £20k) that can reduce your increased (£9030 .. if 65 +) personal allowances. For some people .. that could well mean the lump sum is tax free.

Doesn't help your dilemma .... but they have made it tempting to defer. So long as you do it for over a year ... if you want the lump. You can take the pension ... then change your mind and defer for a while. But you can only defer once.

EdInvestor

Primrose wrote: »

The scandal with the State Pension scheme is that however much you've paid into it via your National Insurance contributions, if you die, the pension dies with you and your spouse/nominated partner doesn't get a penny,

Not so.A spouse/civil partner will inherit 50% of the SERPS/S2P pension ( or more depending on age and when married.)If the widow is receiving a 60% pension based on the deceased contributions, that will be made up to a 100% pension.

If the surviving spouse is below retirement age, on reaching the age, she will be able to claim a 100% state pension based on his earnings.

Some of this only applies to female spouses. After 2010, it will apply to both sexes.

Re the OP's question if there is no tax implication, IMHO better to take the state pension and save/ reinvest any unneeded money.

millie

I am in the 2nd year of deferring mine I would have paid £16 a week in tax if I had taken it as I am still working part time and earning £162 per week, so if I take the lumps sum when I finish working I will pay no tax on it as I will be below the tax threshold. This will save me £800 each year I defer, and its earning a reasonable rate of interest.

Mikeyorks

millie wrote: »

I will pay no tax on it as I will be below the tax threshold.

Hi Millie ..... you seem to have this well organised. I'm assuming you're on £9030 personal allowances. So you don't need to calculate too carefully when you finish work, in order to achieve the tax free lump sum?

millie

Mikeyorks wrote: »

Hi Millie ..... you seem to have this well organised. I'm assuming you're on £9030 personal allowances. So you don't need to calculate too carefully when you finish work, in order to achieve the tax free lump sum?

No I am only 61 but I do not have the full pension fall into the married womans NI catagory, I was told it would be £67.72. Ther have been 2 increases since then but the DWP cannot tell me how much it is worth now unless I take it.

Newly_retired

As I was still working for a further 20 months after the age of 60, and in my final few months of work was just into Higher band tax, I deferred my State pension. When I retired I took the increased weekly amount. This just about brought me up to the full amount, which I would not have had otherwise as I had not paid enough contributions. For various reasons not relevant to this thread it has taken me till now to get my tax sorted out so I did not want the complications of a taxable lump sum as well. I got a tax free lump sum from my occupational pension and also took 25% lump sum from my AVC so did not need another lump sum. On the other hand if I live as long as my Mother I have another 30 years of retirement so I reckoned a higher pension was my better option.
Following advice from other MSE contributors I have changed getting my state pension from monthly in arrears to weekly in advance, so the money is in my bank account, not the government's kitty. Thanks for that!