Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:
Internet Explorer
Google Chrome
Mozilla Firefox

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Main site > Forums > Essential Money > Pensions, Annuities & Retirement Planning > Defer SP and starting rate for savings: Sense che...
Go to page of 2
  • 2.2k views
  • 25 replies
Search
  • FIRST POST
    • User avatar
      User avatar
      annaccordion
      • 20Posts
      • 5Thanks
    • annaccordion
    • By annaccordion 21st Jul 18, 12:31 AM
    • 20Posts
    • 5Thanks

      What's this?

    annaccordion
    Defer SP and starting rate for savings: Sense check?
    • #1
    • 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.

    Users saying Thanks (1)

Page 2
    • User avatar
      User avatar
      annaccordion
      • 20Posts
      • 5Thanks
    • annaccordion
    • By annaccordion 24th Jul 18, 2:41 PM
    • 20 Posts
    • 5 Thanks

      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!

    There are currently no thanks for this post.

    • User avatar
      User avatar
      polymaff
      • 2,333Posts
      • 1,029Thanks
    • polymaff
    • By polymaff 24th Jul 18, 3:35 PM
    • 2,333 Posts
    • 1,029 Thanks

      What's this?

    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

    Users saying Thanks (1)

    • User avatar
      User avatar
      MK62
      • 340Posts
      • 247Thanks
    • MK62
    • By MK62 25th Jul 18, 9:13 AM
    • 340 Posts
    • 247 Thanks

      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.

    Users saying Thanks (1)

    • User avatar
      User avatar
      annaccordion
      • 20Posts
      • 5Thanks
    • annaccordion
    • By annaccordion 28th Jul 18, 11:04 AM
    • 20 Posts
    • 5 Thanks

      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.

    Users saying Thanks (1)

    • User avatar
      User avatar
      drphila
      • 100Posts
      • 36Thanks
    • drphila
    • By drphila 8th Aug 18, 8:05 PM
    • 100 Posts
    • 36 Thanks

      What's this?

    drphila
    “
    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!

    There are currently no thanks for this post.

    • User avatar
      User avatar
      soulsaver
      • 2,143Posts
      • 992Thanks
    • soulsaver
    • By soulsaver 9th Aug 18, 1:02 AM
    • 2,143 Posts
    • 992 Thanks

      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

    Users saying Thanks (1)

Go to page of 2
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

235Posts Today

1,813Users online

Martin's Twitter
NewsBlog