Do I take My Old Age Pension Next Year?

[123]

Originally Posted by disney332

So its a 20% day one upside ( the tax relief )

Disney332

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But in actual money in your pocket its a day-one 100% reduction. As once in the PP it is now gone and no longer spendable, so it only works if you have no need for the income

[123]

A quick update (well actually more information) for anyone in a similar position to the one we found ourselves in.

If you have an as yet unclaimed State Pension from the old scheme (that allowed lump sums) be careful when you claim it if you are about to stop work/have a change in income.

The lump sum is taxable, but has a strange quirk in that it is only taxable at the rate of income tax you are paying on your other income that year.

So if you will earn below £12,500 in the tax year (including your monthly pension payments) then you will pay 0% income tax on the lump sum (regardless of size)

If your income takes you into the 20% bracket then you will pay 20% on the lump sum regardless of size -

and so on if your other income is being taxed at 40% or 45%


One saving grace to this is if you know in the next tax year your prevailing tax rate will be lower (you intend to stop working or you work less hours) then you can make the claim now but defer it being paid until the start of the next tax year. At which point they will tax it at the rate you say you anticipate earning that year (checked at end of year).


So if you earn £60K today but retire (and stop work) tomorrow and have £30k owing as a lump sum; claim it straight away but opt to defer it to next year when you aren't working.

This year you'd lose 40% or 12k in tax
Next year assuming you only have the state pension as income you'd keep it all

[Realise this won't help many (as most have either claimed or on new scheme) but we almost took the lump sum in this year and almost needlessly gave the taxman £30K+ however a very helpful financial advisor told us this just in time]

[Floridarules]

Sorry if this has already been posted, but you can log in through the Government gateway and this tells you what you are entitled to and when, based on your contributions and situation.Takes away the uncertainty👍

[disney332]

Originally Posted by 123

But in actual money in your pocket its a day-one 100% reduction. As once in the PP it is now gone and no longer spendable, so it only works if you have no need for the income

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Obviously

Disney332

[ClaireNJ]

Originally Posted by Loopylooloo

Take the money Mr T, enjoy it while you can. (Spend it on Mrs T) don’t want to be morose but my DH got diagnosed with cancer this week - he is 63 and planning to enjoy his pension soon, we are just hoping he gets to see it now. 😓

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Sorry to hear this hope he’ll be ok 💕xx

[disney332]

Originally Posted by Loopylooloo

Take the money Mr T, enjoy it while you can. (Spend it on Mrs T) don’t want to be morose but my DH got diagnosed with cancer this week - he is 63 and planning to enjoy his pension soon, we are just hoping he gets to see it now. 😓

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So sorry to read this LLL.

I hope the prognosis is positive.

Big hugs to you both

Disney332

[EssexSue]

Originally Posted by Mr Tom Morrow

It is a sad fact than when talking about Pensions you must consider mortality rates both unexpected and hereditary.

My Dad never had his as he died aged 63.

My Father in Law was 44 when he died.

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I was pathetically grateful to get mine, as a Waspi it seemed like it would be forever elusive.

[djewkes]

Me too Sue, my original plan was to defer for 5 years (from age 60) and retire at 65 with a nice lump sum... well they messed that up for me didn’t they... state pension at 65 and 8 months, could have deferred for a year but not worth it... I’m retiring at Christmas at 66 and 8 months having already been in receipt of pension for a year...

I was opted out for 13 years but still got a slightly bigger than normal state pension due to having had 3 jobs for many years and paying extra national insurance... I was so shocked I actually rang up to check...

[Bootrip2]

Originally Posted by 123

A quick update (well actually more information) for anyone in a similar position to the one we found ourselves in.

If you have an as yet unclaimed State Pension from the old scheme (that allowed lump sums) be careful when you claim it if you are about to stop work/have a change in income.

The lump sum is taxable, but has a strange quirk in that it is only taxable at the rate of income tax you are paying on your other income that year.

So if you will earn below £12,500 in the tax year (including your monthly pension payments) then you will pay 0% income tax on the lump sum (regardless of size)

If your income takes you into the 20% bracket then you will pay 20% on the lump sum regardless of size -

and so on if your other income is being taxed at 40% or 45%


One saving grace to this is if you know in the next tax year your prevailing tax rate will be lower (you intend to stop working or you work less hours) then you can make the claim now but defer it being paid until the start of the next tax year. At which point they will tax it at the rate you say you anticipate earning that year (checked at end of year).


So if you earn £60K today but retire (and stop work) tomorrow and have £30k owing as a lump sum; claim it straight away but opt to defer it to next year when you aren't working.

This year you'd lose 40% or 12k in tax
Next year assuming you only have the state pension as income you'd keep it all

[Realise this won't help many (as most have either claimed or on new scheme) but we almost took the lump sum in this year and almost needlessly gave the taxman £30K+ however a very helpful financial advisor told us this just in time]

See more...

Very interesting as i had thought about retiring a few week after my birthday in March as i wasnt sure on tax.

[MrsBC]

Originally Posted by Loopylooloo

Take the money Mr T, enjoy it while you can. (Spend it on Mrs T) don’t want to be morose but my DH got diagnosed with cancer this week - he is 63 and planning to enjoy his pension soon, we are just hoping he gets to see it now. 😓

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Sending lots of hope and good wishes your way x