I'm interested in conversations about and I want to talk about
Know exactly what you want?
Show search

Notification

Error

Pensions

User
Posted 25 Oct 2024 at 02:54

Hi all , for those who don’t know my hubbys story, he was diagnosed 9 yrs ago PSA 23 Gleason 4+5 spread to lymph nodes . He had early chemo and put on the stampede trial . He’s on life long prosap and continues to have abi on the trial. His PSA became undetectable very early on and has stayed there ever since . He still works and has said even though he is due to retire in 2 yrs time he will not . Gary believes working helps keep him going .

2 yrs is still away off and lots can happen in that time . But I would like other’s opinion ,experience or thoughts on claiming his state pension when the time comes . As he will (hopefully) still be working he will be liable to pay 40% on his pension , his thought process is if he defers it he may never get it or very little of it . Does he take what he can and enjoy the 60% which would still pay for extras or defer !!  I don’t retire for 6 yrs and only work 2 days a week .

He has a private pension that would be left to me ,so I’m well looked after.

thankyou 

Debby 

User
Posted 25 Oct 2024 at 21:35

All his income will be added together including any pension he draws. He can then claim some expenses to reduce the income figure, but for most PAYE people these claims will be zero. There is one very important claim he can make and that is contributions to a personal pension. That last sentence is going to be VERY VERY important for his decision on drawing his state pension.

All income below £12570 is tax free, the next £37700 is taxed at 20%, the total tax in this band is £7540 anything above £50270 is taxed at 40%. 

By deferring his state pension by one year it will be increased by the government by 5.8% for the rest of his life. For simplicity I will assume the state pension is £10k per year. By deferring 1 year he will lose £10k, but there after he will get £580 per year extra. It will take him just over 17 year to make up the £10k he lost out on. So he needs to live to beyond 85 to make deferring make sense. 

The actual state pension will be about £15k by the time he retires, but that has no effect on the 17 year pay back period. 

Here is what I would do in this situation. Draw the full state pension as soon as possible, keep on working as long as he is happy doing that, make a MASSIVE contribution to the private pension every year, to get below 40% tax (as long as you can both live comfortably on the £50k that is left). To all intents and purposes he is drawing his state pension to pay into his private pension tax free. You (and he) will then be able to draw on a much bigger pot when you want to. He needs to get as much money out of the government pension as soon as possible and get that money into his personal pension, which he (and you) can control.

The budget may effect the rules about pension inheritance and tax reliefs, but under the current system, what I am suggesting will improve your retirement finances a lot.

I'm not a tax advisor, but I know how to plan my affairs tax efficiently.

 

Dave

User
Posted 25 Oct 2024 at 15:39

Hi Debby,

i don’t think  he will pay 40% on his state pension. He will however pay it on his salary if his total earnings exceed the threshold for paying higher tax. He will obviously only pay it on his earnings above this. I am not a Financial Advisor but I think he would benefit from speaking to a good one if you can get a recommendation.

Our a Maggies centre also have access to people for financial advice such as this.

I admire his work ethic though!

If it were me in his position I would definitely take it.

Derek

Edited by member 25 Oct 2024 at 15:39  | Reason: Not specified

User
Posted 26 Oct 2024 at 21:03
I'm also not an advisor, but I did roughly what Dave suggests above. In your last years of working if you can contribute more to your pension scheme and you are in the 40% tax bracket then you are only losing £60 of spending money for each £100 going in. In effect you are getting a 67% bonus.

In your husband's case the state pension will contribute to his overall taxed income so in effect he will pay 40% on it. But if he draws it and pays the same amount into his pension scheme there will be no tax payable and his net income will stay the same.

Now financially, the balance between the 5.8% from deferring and the future gain on whatever the pension plan is invested in isn't known - but what you do know is that by taking the money now he is not gambling on how long he lives, the money will either contribute to his future pension or be passed on to you.

(Obviously that is how it works now, but there is a Budget next week and things could change. The papers are full of ideas about what MIGHT change but there are far more suggestions than will possibly be actually changed).

Show Most Thanked Posts
User
Posted 25 Oct 2024 at 15:39

Hi Debby,

i don’t think  he will pay 40% on his state pension. He will however pay it on his salary if his total earnings exceed the threshold for paying higher tax. He will obviously only pay it on his earnings above this. I am not a Financial Advisor but I think he would benefit from speaking to a good one if you can get a recommendation.

Our a Maggies centre also have access to people for financial advice such as this.

I admire his work ethic though!

If it were me in his position I would definitely take it.

Derek

Edited by member 25 Oct 2024 at 15:39  | Reason: Not specified

User
Posted 25 Oct 2024 at 21:35

All his income will be added together including any pension he draws. He can then claim some expenses to reduce the income figure, but for most PAYE people these claims will be zero. There is one very important claim he can make and that is contributions to a personal pension. That last sentence is going to be VERY VERY important for his decision on drawing his state pension.

All income below £12570 is tax free, the next £37700 is taxed at 20%, the total tax in this band is £7540 anything above £50270 is taxed at 40%. 

By deferring his state pension by one year it will be increased by the government by 5.8% for the rest of his life. For simplicity I will assume the state pension is £10k per year. By deferring 1 year he will lose £10k, but there after he will get £580 per year extra. It will take him just over 17 year to make up the £10k he lost out on. So he needs to live to beyond 85 to make deferring make sense. 

The actual state pension will be about £15k by the time he retires, but that has no effect on the 17 year pay back period. 

Here is what I would do in this situation. Draw the full state pension as soon as possible, keep on working as long as he is happy doing that, make a MASSIVE contribution to the private pension every year, to get below 40% tax (as long as you can both live comfortably on the £50k that is left). To all intents and purposes he is drawing his state pension to pay into his private pension tax free. You (and he) will then be able to draw on a much bigger pot when you want to. He needs to get as much money out of the government pension as soon as possible and get that money into his personal pension, which he (and you) can control.

The budget may effect the rules about pension inheritance and tax reliefs, but under the current system, what I am suggesting will improve your retirement finances a lot.

I'm not a tax advisor, but I know how to plan my affairs tax efficiently.

 

Dave

User
Posted 26 Oct 2024 at 08:34
Thank you it’s been a great help having the figures laid out . And yes we need to seek other advice . Let’s hope that we have many more yrs left and can enjoy it xx

Debby

User
Posted 26 Oct 2024 at 21:03
I'm also not an advisor, but I did roughly what Dave suggests above. In your last years of working if you can contribute more to your pension scheme and you are in the 40% tax bracket then you are only losing £60 of spending money for each £100 going in. In effect you are getting a 67% bonus.

In your husband's case the state pension will contribute to his overall taxed income so in effect he will pay 40% on it. But if he draws it and pays the same amount into his pension scheme there will be no tax payable and his net income will stay the same.

Now financially, the balance between the 5.8% from deferring and the future gain on whatever the pension plan is invested in isn't known - but what you do know is that by taking the money now he is not gambling on how long he lives, the money will either contribute to his future pension or be passed on to you.

(Obviously that is how it works now, but there is a Budget next week and things could change. The papers are full of ideas about what MIGHT change but there are far more suggestions than will possibly be actually changed).

 
Forum Jump  
©2024 Prostate Cancer UK