State Pension Top Up

uk1 · 8 October 2015 at 11:20AM

I am checking this out and there are some bits of it I am struggling with so hope someone can answer this for me .....

I have reached state retirement age .... and so has my wife and we are deferring for at least a further year probably to the end of next year. I am thinking of the wisdom of adding to this say £25 weekly pension through State Pension Top Up. I have the capital to do this. My wife and I are both 65 a few weeks ago, so wifey is in decent deferment and I have just started. We will not be entitled to any means tested benefits.

Some questions:

1 if I apply when it opens but haven't yet taken my state pension, will this trigger payment of my state pension or will it simply remain dormant and be added to my current state pension entitlement and only start paying when I apply to start my state pension.

2 If I continue to defer will the top up element increase by 10.4% per year alongside the basic state pension. Or does it make better sense to wait until just after my 2016 birthday to get a lower rate.

3 How much of it will be inheritable by my wife?

Many thanks,

J.

xylophone · 8 October 2015 at 12:36PM

See this thread and links

https://forums.moneysavingexpert.com/discussion/comment/69293712#Comment_69293712

I can't see that buying the contributions would automatically bring a deferred pension into payment but you could contact the Pension Service and check.

patanne · 8 October 2015 at 12:44PM

But you can also defer again. As in defer the start of your state pension, take it for a while, then defer again. There is something odd about the lump sum to do with that but not sure what. Hopefully Xylophone will be back to put me right! But I don't think a lump sum at the end of deferment is of much interest to you as the increased pension is a much better deal normally.

kidmugsy · 8 October 2015 at 2:37PM

uk1 wrote: »

I have reached state retirement age .... and so has my wife and we are deferring for at least a further year probably to the end of next year. I am thinking of the wisdom of adding to this say £25 weekly pension through State Pension Top Up.

If your capital will stretch only to EITHER your deferring beyond the end of next year OR buying the top up, but not both, the further deferral is better value. If you have capital enough, then buying both could be a decent scheme, especially if one of you would receive the top-up pension tax-free.

Another possibility you could consider is having your wife start her pension as a way of funding you in deferring yours: this can be attractive for some couples in terms of income tax avoidance.

You might also like to consider whether investing your capital into personal pensions for each of you might be more attractive than buying the top-up. Even if you are not earning you are each allowed to contribute up to £2880 net per tax year. The attractions depend on your tax position.

uk1 wrote: »

How much of it will be inheritable by my wife?

50% I believe: a higher proportion of the extra pension earned by deferral is likely to be inherited (I expect my wife to inherit more than 90% of mine).

jamesd · 8 October 2015 at 4:22PM

uk1 wrote: »

I have reached state retirement age .... and so has my wife and we are deferring for at least a further year probably to the end of next year. I am thinking of the wisdom of adding to this say £25 weekly pension through State Pension Top Up.

Don't throw your money away. Have a look at the table I gave in my post in the thread you've already been linked to. At age 65 all you'd get is 5.84% of the money you spend. You can get 10.4% by using that same money to defer for longer and get 10.4% on it, less a bit for the time cost of money.

It just doesn't make sense for most people to use class 3A because they can usually defer instead. Be kind to your friends who will be at state pension age before 6 April 2016 and show them that table and compare it to the 10.4% they can get if they use the money to defer instead. Like you, they will almost certainly be better off.

uk1 wrote: »

1 if I apply when it opens but haven't yet taken my state pension, will this trigger payment of my state pension or will it simply remain dormant and be added to my current state pension entitlement and only start paying when I apply to start my state pension.

It's an addition to your Additional State Pension portion so I see no reason for it to start the pension instead of just being added at the value when you purchase it.

uk1 wrote: »

2 If I continue to defer will the top up element increase by 10.4% per year alongside the basic state pension. Or does it make better sense to wait until just after my 2016 birthday to get a lower rate.

The rate depends on your age so delaying increases how much you can get for your money. I don't see an explicit statement but since it's an addition to your ASP it should increase with it in deferment.

uk1 wrote: »

3 How much of it will be inheritable by my wife?

At least 50% according to the policy documents. It appears that it will be handled just like normal state pension inheritance, which can quite often produce more than 50%.

So far as you and your wife deferring goes, both of you doing it seems nicely balanced assuming your life expectancies are about equal. If one of you had a life expectancy substantially different from the other, deferring longer for the one with longer life expectancy might be a good idea, protecting for them dying first with life assurance or insurance. If one of you happens not to be a tax payer, favouring that one with longer deferral might be a good move because the lack of income tax increases the benefit of deferring or class 3A.

jamesd · 8 October 2015 at 4:29PM

As kidmugsy suggested, don't neglect paying £2880 net into personal pensions every year until you reach age 75. You make 6.5% on the amount you pay in if you're paying in at basic rate tax relief and paying basic rate income tax on the way out. Something as simple as paying into the Virgin pension, waiting for the tax relief to be added, then taking the money out will do the job.

The money in the Virgin pension is invested in the UK stock market so there is a chance of investment gains or losses between paying in and taking out.

xylophone · 8 October 2015 at 4:49PM

But you can also defer again. As in defer the start of your state pension, take it for a while, then defer again. There is something odd about the lump sum to do with that but not sure what.

The NI site but this?

http://www.nidirect.gov.uk/state-pension-deferral-how-do-you-decide-what-to-do

"If you defer claiming your State Pension when you reach State Pension age, claim it and then want to stop claiming it for another period, the two periods of time will be treated separately.

This means that if you defer claiming your State Pension for less than 12 months the first time, you would only be able to get extra State Pension for that period. You would need to stop claiming for 12 months or more the second time to be able to get a lump-sum payment."

chris1 · 8 October 2015 at 4:52PM

uk1 wrote: »

1 if I apply when it opens but haven't yet taken my state pension, will this trigger payment of my state pension or will it simply remain dormant and be added to my current state pension entitlement and only start paying when I apply to start my state pension.

2 If I continue to defer will the top up element increase by 10.4% per year alongside the basic state pension. Or does it make better sense to wait until just after my 2016 birthday to get a lower rate.

1. It won't trigger payment of State Pension.

2. Top up element will also increase by 10.4%.
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/414708/factsheet-top-up.pdf

I think the OP is planning to do both top up and deferment together.

HTH

uk1 · 8 October 2015 at 6:42PM

Thanks for the replies.

Yes, I was planning both it isn't either or. If it was I would obviously choose to further defer, but I needn't have to make the choice.

I am fortunate enough to have a sizeable chunk of my final tranch if high interest savings and ISA interest savings maturing over the next 12 months. It has dived down over the matures over the last year or so and it stands at 2.86% average but will all near enough be maturing over the next 12 months. With my other pensions and with the cash I need not touch either of our state pensions for some time .. in fact indefinately .. and could invest the max top up. I am just optimising cash but recognise also that at some point continuing to defer may not ahve sense. I am struggling to make sense of all my options as the variables are several and I am fortuante to have options. I am just going to decide each year whether to stop defering, partly resulting from other decisions like whether we might sell a second property. My current decsion is just about top up. Ie for my wife or me or both ... and should I do it now and that might make sense if the 10.4% is involved.

I couldn't see in the document where it says that if I bought the top up early that it would be added to the pension and roll up by 10.4%. The documents also say it is inheritable between 50 to a 100% but doesn't say how to home in on which for either of us.

Thanks,

J.

atush · 8 October 2015 at 9:21PM

Either defer again, or open a DC/personal pension and pay in.

Short term, defering is better. Long term, depending on your health, having another DC pot could be of help.

xylophone · 9 October 2015 at 12:04AM

Inheritable on death on the same terms as existing additional state pension, that is, according to the age of the spouse.

https://www.gov.uk/additional-state-pension/further-information

State Pension Top Up

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