Defer state pension.

[Westy23]

Good morning all.
Am in the fortunate position of reaching state pension age this coming may and
other than waiting for a hernia repair am still healthy ish and still working.
My income is £52000 so just in the 40% tax bracket.
If I take my state pension in may it will all be taxed at 40% and
am wondering what are the pros and cons of deferring my state pension
for one year as I intend to stop working next may on my 67 birthday?

[tjh290633]

You can always take it and use the cash received to top up your occupational pension or a SIPP, provided that you don't exceed the limits, to keep the tax liability down.

TJH

[Hardgrafter]

It may be simpler to defer the state pension until next year. You would get a 5% uplift in the payments and avoid unnecessary complications for the one year.

[mc2fool]

Well, the upside is that deferring for a year will get you an extra ~5.8%pa (gross) when you start getting it, and forever thereafter.

The downside is that you don't get anything for the deferred year, and it will take 17 years 3 months for the (gross) increased total to make up the (gross) loss from that missed year.

After that, of course, you're quids in ... but if you pop your clogs before then you/your estate have lost out.

Taxed (net) calculations (and especially the effects of differing marginal rates) are left as an exercise for the reader.

[Lootman]

Well, the upside is that deferring for a year will get you an extra ~5.8%pa (gross) when you start getting it, and forever thereafter.

The downside is that you don't get anything for the deferred year, and it will take 17 years 3 months for the (gross) increased total to make up the (gross) loss from that missed year.

After that, of course, you're quids in ... but if you pop your clogs before then you/your estate have lost out.

Taxed (net) calculations (and especially the effects of differing marginal rates) are left as an exercise for the reader.

Yes, a simple rule of thumb is to divide the percentage deferral rate (5.8% in this case) into 100 to get the number of years to break even.

I have another pension that accrues 8% for each year of deferral, so there the break-even point is after 12.5 years, or age 78 or so for me. By deferring I am betting that I will live at least that long.

[Westy23]

Thank you all and something to think about.

[richfool]

Good morning all.
Am in the fortunate position of reaching state pension age this coming may and
other than waiting for a hernia repair am still healthy ish and still working.
My income is £52000 so just in the 40% tax bracket.
If I take my state pension in may it will all be taxed at 40% and
am wondering what are the pros and cons of deferring my state pension
for one year as I intend to stop working next may on my 67 birthday?

By deferring, which I did for 1 year and 4 months, you get the uplift on your pension ever after, and you get the cost of living increases on the uplift.

Also, by deferring taking the pension income in a year when you are still earning and thus a higher rate tax payer, and deferring taking the pension income to a future year when you are no longer a higher rate tax payer, you could avoid incurring higher rate tax on the pension income.