Advise on Pension

[Captain Nemesis]

Would it benefit me in any way if I delayed claiming my state pension until I'm 70

I think shoutymans website has a good explanation of that.

 

[Captain Nemesis]

It may be crafty but I'm thinking of paying in £30000 then the government would pay 20% on that? Or is it tax relief.

Tax relief.

But I guess you could use your lump sum to live on so that you can put an extra £30K of earnings into your pension and get tax relief?

Does my mathes add up and is this legal

Dunno. As you say, you should get some pro advice.

 

[Mottie]

Would it benefit me in any way if I delayed claiming my state pension until I'm 70

You’ll still pay tax on it whenever you take it but there’s always the chance you may not be around to claim it. A bloke I know, 74, never claimed his as he didn’t need it. He still does a bit of work installing swimming pools and runs the local shoot - he’s not short of a Bob or two. Earlier this year he was contacted by DWP and including interest, he got a lump sum of just over £59,000. I assume he will pay tax on it but he treated himself to a £35,000 Austin Heaney 3000 that he'd liked as a teenager. He has been baffled as to who has been putting money in his bank for the last few months until he was told it was his state pension!

 

[motorbiking]

It may be crafty but I'm thinking of paying in £30000 then the government would pay 20% on that? Or is it tax relief.
Then take that £30000 to pay my mortgage and other loan off that's attached to my Mortgage.
out of my pension tax free.

Does my mathes add up and is this legal

As long as you've considered the net present value/interest of the cost of money, pension admin fees today vs payoff day. Yes If you are a basic rate of tax payer your pension provider will claim it as tax relief and add it to your pension pot (‘relief at source’).

 

[JohnD]

It may be crafty but I'm thinking of paying in £30000 then the government would pay 20% on that? Or is it tax relief.

you are allowed to pay, in each tax year, as much as your taxable earnings. So if you have £30,000 of taxable earnings, you are allowed to contribute £30,000 gross; but you do this by paying in £24,000 out of your own pocket, and the government rebates the £6,000 tax you paid (nominally) into the pension fund.

If you pay in £30,000 out of your pocket, it will be grossed up to £37,500 with the tax rebate.

But if you are a tax dodger, or a bank robber, who pays no tax, you won't get a rebate.

There is an exception for people on very low, or no, earnings, who are allowed to contribute £2880, and the government will top it up to £3,600 paid into the fund, even if they did not actually pay any tax that year.

There is a limit, currently £40,000 per tax year, on contributions that receive the tax rebate.

There is also a limit, just over a million, on the "lifetime allowance" of the value of your fund, with more complications

Then take that £30000 to pay my mortgage and other loan off that's attached to my Mortgage.
out of my pension tax free.

Does my mathes add up and is this legal

This needs more care. If you take out a tax-free sum and start drawing income, (you are allowed up to 25% of the fund value tax free) then you will never be able to have any more tax-free. This might not be best.

The following is based on hypothetical figures.

I do not have a yacht or a daughter.

I have recently decided that I am retired, and find that I am lucky enough to have built up a bigger pension that I had expected.

I have decided that I had better take some of it and spend it before I shuffle off, and I want to buy a car.

In my case, I am not taking a regular income from it by annuity or drawdown (which would trigger the once-only tax-free up to 25% allowance)

But I am taking a Partial Encashment.

Let's suppose I already have a taxable income of £20,000 (so I am a basic rate taxpayer)

And let's suppose that the Higher Rate tax starts at £50,270.

So I could take a taxable amount of £30,270 without paying Higher Rate Tax.

But by Partial Encashment, I get 25% tax free of whatever I take.

So I can "encash" £40,360
Of which £10,090 will be tax free
And £30,270 will be taxable at 20%

And I can do the same next year, and the year after, if I want to, until I peg out or have sucked out all the money from the pension scheme (I am allowed to draw it all out and squander it, for example if I have a terminal disease or am an idiot.)

This planning enables me to avoid higher rate tax, and means I can get more net income in every year.

I am not allowed to put the money back into the pension and get another tax rebate on it. But if I have any left over I can reinvest it in my ISA.

If I had some other large expense, like new engines for the yacht, or a daughter's wedding, I could take an encashment in March (this tax year) and another in April (next tax year), giving me over £80,000.

 

[JohnD]

Would it benefit me in any way if I delayed claiming my state pension until I'm 70

Probably not, because the amount you have forgone will take you years to get back.

"But you're giving up nearly £7,000 in income each year, so you need to be claiming the state pension for a number of years before you earn back what you've given up by deferring. ... If you reached state pension age after 6 April 2016, the 'pay back' period is 17 years."

https://www.which.co.uk/money/pensi...ion/deferring-your-state-pension-ahr9w8p0f87w - Which?

Would you bet on living to 87 and beyond, to make a profit?
If you don't, the government keeps the difference.

You might consider it if you expect to live a long time, or if you are a higher-rate taxpayer now and will be a basic-rate taxpayer after you retire. I would suggest drawing it and investing whatever is spare. If you invest it in an ISA, the income will be tax-free. Or you could spend it on women and drink.

 

[JohnD]

When did you set your pension to mature by? When I took mine out I chose it to mature at 60 so I’ve been getting it for three years now.

you can change the date if you want

also

Very few people take an annuity now, many go for income drawdown, some go for partial encashment, so you can vary the amount at whim.

I moved one smallish scheme into income drawdown when I had to stop work due to a family illness, then set the drawdown amount to £0 per month when I no longer needed it. This enabled growth to continue.

 

[Mottie]

you can change the date if you want

I didn’t know that. Coming up to my 60th birthday I got some paperwork come through saying it was maturing and asking me what I wanted to do with it. I knew absolutely nothing about pensions but a mate who knew a little about it looked at it and said I was lucky as it was a 'GAR' - guaranteed annual return (I think). I also had two pensions because when I went from self employed to employed in the mid 90’s I opted to have the tax relief added to the pension instead of being taken off my tax bill but unknown to me, that couldn’t be added to my existing pension after a certain date so I effectively had another pension that wasn’t GAR. Anyway, I took the separate pension when I was 60, had 25% of it tax free and paid tax on the rest as I estimated I’d have to draw on it for 18 years or more to get the same as I would by taking it then. When I came to buy an annuity, my pension company (Scottish life) had to put something like another 60% or more to it and transfer the lot to another pension company to enable them to pay whatever the guaranteed rate was. Or something like that, I can’t remember exactly. I must admit I have little interest or knowledge in pensions but I suppose I should have taken more notice. Anyway, I’m happy with what I’m getting and the state one in 3 years time will top it up. We've still got the garage to sell, rent or develop when I no longer want it and I suppose if we do sell, we'll just put that aside to take from if and when it’s needed. From day one when we bought the place back in 1984, that was always going to be our pension anyway.