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Main site > Forums > Essential Money > Pensions, Annuities & Retirement Planning > Defer SP and starting rate for savings: Sense che...
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      annaccordion
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    • By annaccordion 21st Jul 18, 12:31 AM
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      What's this?

    annaccordion
    Defer SP and starting rate for savings: Sense check?
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    • 21st Jul 18, 12:31 AM
    Defer SP and starting rate for savings: Sense check? 21st Jul 18 at 12:31 AM
    Hi All

    I wasn't sure whether this is best in the 'pensions' or the Tax avoidance, so if wrong apologies in advance, but here & I am hoping for the best... and sorry about long post..

    but I'm a bit confounded by the variables when considering deferring my SP.

    I've been drawing SP for 18 months, now £7k pa, contracted out most of working life. It can it still be deferred?

    In addition have a straight line annuity pension of £10.7k pa.

    I have taxable savings income including some P2P interest of c. £10k pa.*

    So - please sense check this hypothesis & tell me if anything is rubbish and maybe clear up any doubts or incorrect assumptions. Help much appreciated :

    Deferring SP would allow me the starting rate for savings and save £1k a year in tax, £5K @20%?

    However, I'd be worse off per year of SP which would be basic rate taxed so £7k x0.8 = £5.6k

    So 'loss' pa = £4.6k. (£5.6k less £1k tax 'gain') clawed back in future at the enhanced rate for deferment.

    My understanding is SP will be enhanced by 5.8% for each year deferred?

    So assuming no rule changes and disregarding SP increases, for say, two years deferment...

    2 x £4.6k = £9.2k lost, recouped at the rate of SP £7K x 5.8% x2 year deferred =£0.812k x 0.8 for tax =£ 0.65k pa

    9.2k/0.65 = 14.15


    = c.14 years to recoup total 'lost' SP funds? After which I stand to gain the £650 pa for the extent of my survival?

    Is this all correct?


    *Note: I'm adequately exposed to S&S - all sheltered in my (untouched) SIPP & S&S ISA, no other income.
    Last edited by annaccordion; 21-07-2018 at 12:46 AM.

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    • By annaccordion 24th Jul 18, 2:41 PM
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      What's this?

    annaccordion
    Yes I believe that the pre 04/2016 SPa offer is a no brainer to defer if you don't need the money immediately to live on.

    I've seen well respected people on here describe the new rules as (still) being a 'no brainer' to defer.

    I definitely don't see it as that clear cut, even with the advantage of the unusual circumstances & under current rules that allows a £1k tax gain to defer.

    Sorry!

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    • By polymaff 24th Jul 18, 3:35 PM
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    polymaff
    Definitely agree re: old SP. Debateable for the new SP. To me swung by the £1k pa where the case applies - but then there's the fickle finger of fate waiting to turn the client's world upside down.

    I wish you a long, healthy retirement. Report back in 30 years

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      MK62
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    • By MK62 25th Jul 18, 9:13 AM
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      What's this?

    MK62
    “
    Yes I believe that the pre 04/2016 SPa offer is a no brainer to defer if you don't need the money immediately to live on.

    I've seen well respected people on here describe the new rules as (still) being a 'no brainer' to defer.

    I definitely don't see it as that clear cut, even with the advantage of the unusual circumstances & under current rules that allows a £1k tax gain to defer.
    Originally posted by annaccordion ”

    I think you need to work some numbers.......you would be better off eventually, but it could take 15 years or more (depending on various factors inc. your monthly spending and how/if you make up for the income shortfall from 2 years of deferring).
    Bear in mind too, that until the break even point, you are worse off.......
    Admittedly, in your case, it's complicated by your relatively large savings income and the 0% starter rate on savings (the tax saving on that bringing the break even point a couple of years closer).....but even so, it comes down to a roll of the dice on longevity.

    All that said, in your position it's all little more than tinkering round the edges tbh....it's not going to make all that much difference to you either way.

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    • By annaccordion 28th Jul 18, 11:04 AM
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      What's this?

    annaccordion
    “

    All that said, in your position it's all little more than tinkering round the edges tbh....it's not going to make all that much difference to you either way.
    Originally posted by MK62 ”
    True - however much of the savings income is from a load of cumulative tinkering..

    But for me this one appears to be much work & carries more risk with not enough potential gain.

    I hope it's been a useful thread for others, too.

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    • By drphila 8th Aug 18, 8:05 PM
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      What's this?

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    “
    Irrelevant to the issue. Think about it.
    Originally posted by polymaff ”

    I don't understand the point about inflation not being relevant. Could somebody please explain.

    Sorry!

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    • By soulsaver 9th Aug 18, 1:02 AM
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      What's this?

    soulsaver
    “
    I don't understand the point about inflation not being relevant. Could somebody please explain.
    Originally posted by drphila ”
    ...not significantly relevant to the payback calculation... as the inflation eroded spending power of the foregone funds over the deferment period is mitigated by the RPI increases on the deferred SP amounts when eventually received (un-deferred).
    Last edited by soulsaver; 09-08-2018 at 1:08 AM. Reason: clarity

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